UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended November 30, 1995
OR
- ------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number : 0-7908
PIONEER HI-BRED INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Iowa 42-0470520
- ------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
700 Capital Square, 400 Locust, Des Moines, Iowa 50309
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(Address of principal executive offices)
Registrant's telephone number, including area code: (515) 248-4800
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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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 29, 1995
- ----------------------------- --------------------------------
Common Stock ($1.00 par value) 83,486,729
PIONEER HI-BRED INTERNATIONAL, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets-- November 30, 1995,
August 31, 1995, and November 30, 1994..................... 3-4
Consolidated Condensed Statements Of Operations-- Three Months
Ended November 30, 1995 and 1994........................... 5
Consolidated Condensed Statements Of Cash Flows-- Three Months
Ended November 30, 1995 and 1994........................... 6
Notes to Consolidated Condensed Financial Statements......... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 8-11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 12
Signatures............................................................ 13
PART I - FINANCIAL INFORMATION
PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited, in millions)
November 30, August 31, November 30,
ASSETS 1995 1995 1994
---------- ----------- --------
CURRENT ASSETS
Cash and cash equivalents........... $ 84 $ 84 $ 67
Accounts and notes receivable, net.. 139 209 146
Inventories:
Finished seed..................... 359 280 367
Unfinished seed................... 347 140 339
Other............................. 8 6 6
Prepaid expenses and other current
assets............................ 6 2 13
Deferred income taxes............... 54 49 62
-------- -------- --------
Total current assets.............. $ 997 $ 770 $ 1,000
LONG-TERM ASSETS........................ 39 41 38
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and allowances
November 30, 1995 - $460
August 31, 1995 - $447
November 30, 1994 - $414............ 486 472 459
INTANGIBLES............................. 9 10 13
-------- -------- --------
$ 1,531 $ 1,293 $ 1,510
======== ======== ========
See Notes to Consolidated Condensed Financial Statements.
PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited, in millions)
LIABILITIES AND SHAREHOLDERS' November 30, August 31, November 30,
EQUITY 1995 1995 1994
----------- ---------- -------
CURRENT LIABILITIES
Short-term borrowings................. $ 190 $ 58 $ 199
Current maturities of long-term debt.. 52 53 1
Accounts payable, trade............... 273 58 324
Accrued compensation.................. 30 45 28
Income taxes payable.................. 3 23 --
Other accruals........................ 35 43 37
-------- -------- --------
Total current liabilities........... $ 583 $ 280 $ 589
-------- -------- --------
LONG-TERM DEBT............................ $ 17 $ 18 $ 65
-------- -------- --------
DEFERRED ITEMS, primarily income taxes
and retirement benefits............... $ 77 $ 75 $ 78
-------- -------- --------
MINORITY INTEREST IN SUBSIDIARIES........ $ 5 $ 7 $ 6
-------- --------- --------
SHAREHOLDERS' EQUITY
Preferred stock, no par value....... $ -- $ -- $ --
Common stock, $1 par value.......... 93 93 93
Additional paid-in capital.......... 18 18 15
Retained earnings................... 1,052 1,118 932
Cumulative translation adjustment... 1 1 (1)
-------- -------- --------
$ 1,164 $ 1,230 $ 1,039
Less: Cost of common shares
acquired for the treasury........... (303) (303) (257)
Unearned compensation............... (12) (14) (10)
-------- -------- --------
$ 849 $ 913 $ 772
-------- -------- --------
$ 1.531 $ 1,293 $ 1,510
======== ======== ========
See Notes to Consolidated Condensed Financial Statements.
PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited, in millions)
Three Months Ended
November 30,
1995 1994
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Net sales.......................................... $ 92 $ 69
-------- --------
Operating costs and expenses:
Cost of goods sold............................... $ 53 $ 40
Research and development......................... 31 27
Selling.......................................... 53 50
General and administrative....................... 31 29
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$ 168 $ 146
-------- --------
Operating (loss)................................. $ (76) $ (77)
Investment income.................................. 4 4
Interest expense................................... (4) (3)
Net exchange (loss)................................ (3) (2)
-------- ---------
(Loss) before income taxes....................... $ (79) $ (78)
Provision for income taxes......................... 30 30
-------- --------
Net (loss)....................................... $ (49) $ (48)
======== ========
(Loss) per common share*........................... $ (.59) $ (.57)
Dividends per common share*........................ $ .20 $ .17
Weighted average number of common shares
outstanding...................................... 83 85
* Not in millions
See Notes to Consolidated Condensed Financial Statements.
PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
Three Months Ended
November 30,
1995 1994
--------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)....................................... $ (49) $ (48)
Noncash items included in net (loss):
Depreciation and amortization.................. 18 18
Net change in assets and liabilities............. (52) (142)
-------- --------
Net cash used in operating activities.......... $ (83) $ (172)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................. $ (30) $ (15)
Other............................................ (1) (1)
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Net cash used in investing activities.......... $ (31) $ (16)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds on short-term borrowings............ $ 131 $ 185
Purchase of treasury stock....................... -- (49)
Dividends paid................................... (17) (15)
Other............................................ -- (1)
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Net cash provided by financing activities...... $ 114 $ 120
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Net decrease in cash and cash equivalents....... $ -- $ (68)
Cash and cash equivalents, beginning............... 84 135
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CASH AND CASH EQUIVALENTS, ENDING.................. $ 84 $ 67
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid (received) for:
Interest................................ $ 5 $ 7
======== ========
Income taxes............................ $ (7) $ 10
======== ========
See Notes to Consolidated Condensed Financial Statements.
PIONEER HI-BRED INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to fairly present the financial
position as of November 30, 1995 and 1994, and the results of operations and
cash flows for the three months ended November 30, 1995 and 1994. Because of
the seasonal nature of the Company's business, the results of operations for
the three months ended November 30, 1995, are not indicative of the results
to be expected for the full year.
2. The Company has guaranteed the repayment of principal and interest on
certain obligations of Village Court Associates, an affiliated real estate
venture. At November 30, 1995, such guarantees totaled approximately $23
million.
3. On September 18, 1995, the Company and Mycogen Corporation announced they
had signed a Memorandum of Understanding to pursue an agreement in which
Pioneer would make an investment in Mycogen and the two companies would
create a research collaboration. On December 13, 1995, the agreement was
finalized.
The investment by Pioneer totaled $51 million, of which $30 million was for
the purchase of three million shares of Mycogen common stock and the
remainder to fund the research collaboration.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
unaudited condensed consolidated financial statements and notes, and with the
Company's audited financial statements and notes for the fiscal year ended
August 31, 1995.
MATERIAL CHANGES IN FINANCIAL CONDITION:
Due to the seasonal nature of the agricultural seed business, the Company
generates most of its cash from operations during the second and third quarters
of the fiscal year. Cash generated during this time is used to meet the cash
needs of the period and to pay the commercial paper and accounts payable which
are the Company's primary sources of financing during the first and fourth
quarters of the fiscal year. Any excess funds are invested, primarily in
short-term commercial paper.
Most of the Company's financing is done through the issuance of commercial
paper in the U.S., backed by revolving and seasonal lines of credit. In
addition, foreign lines of credit and direct borrowing agreements are relied
upon to support overseas financing needs. Short-term debt at November 30, 1995,
consisted of $174 million in domestic commercial paper and $16 million in direct
borrowings from foreign banks.
During fiscal 1996, the Company has the following domestic lines of credit
available:
(in millions)
Revolving Seasonal Total
--------- -------- -----
First quarter $200 $100 $300
Second quarter $200 $100 $300
Third quarter $200 $ -- $200
Fourth quarter $200 $ -- $200
The Company also has a $100 million private medium-term note program of
which $50 million is available as of November 30, 1995. The medium-term note
matures in February, 1996, and represents the majority of current maturities of
long-term debt at November 30, 1995.
At November 30, 1995, accounts payable decreased from a year earlier
primarily due to lower production costs associated with the smaller crop
harvested in the fall of 1995 compared to the fall of 1994.
MATERIAL CHANGES IN RESULTS OF OPERATIONS:
Net loss for the three months ended November 30, 1995, was $49 million, or $
.59 per share compared to a net loss of $48 million, or $ .57 per share, for the
first quarter of fiscal 1995. Due to the seasonality of the seed business,
single quarter results and quarter-to-quarter comparisons are not always
meaningful. Accordingly, such comparisons are not emphasized. Typically, most of
the Company's revenue and operating profit is generated in the third quarter.
Management believes the Company is on track to have another strong year in
1996. In North America, Pioneer (R) brand hybrids once again performed very well
compared to the competition. On-farm yield comparisons in the fall of 1995
showed that the average of all Pioneer (R) brand hybrids out yielded the average
competitor by 4.7 bushels per acres, while the Company's top 30 selling hybrids
which represent 80 percent of the Company's total seed corn sales in North
America, posted a yield advantage of approximately 6.2 bushels per acre over the
average competitor in 1995.
Higher sales in 1996 are expected within North America as corn acreage is
projected to rise 10 percent or more over 1995 levels and the average per-unit
sales price is expected to increase over 1995 levels. The major factor
contributing to the acreage increase is a change in the U.S. government
set-aside program. In 1995, farmers participating in the feed grain program were
required to keep their corn acres at 92.5 percent or less of their historical
corn acreage base. In 1996, farmers will be able to plant potentially 100
percent of their historical corn acreage base. The average per-unit sales price
in North America is also expected to increase slightly due to a change in mix to
higher-priced better-performing premium hybrids. The list price for all hybrids
remained unchanged from 1995.
However, operating results in North America will be impacted by higher
per-unit seed costs. Current year per-unit cost of goods sold is expected to be
approximately $1.10 higher than the previous year. Most of the additional
per-unit costs are due to the smaller crop harvested in the fall of 1995
compared to the previous year and increased grower payments resulting from
higher commodity prices.
Results of operations outside North America for 1996 are expected to be
comparable to those reflected in 1995. Within Europe, management anticipates
that operations will be flat with 1995. Latin American operations are expected
to show continued growth as a result of price and volume increases in Argentina
and volume increases in Brazil. Lower unit sales are expected in Mexico due to
acreage reductions, drought, and devaluation.
At this point in the year, there are a number of key drivers that are
difficult to predict. Results in any given year can be significantly affected by
weather, government policies, and other conditions beyond the Company's control.
Therefore, fluctuations in expected results are likely as more information
becomes available.
Three Months Ended November 30, 1995 compared to the Three Months Ended November
30, 1994
Sales for the first three months of fiscal 1996 improved 33 percent over the
same period a year earlier, however, increased investments in research and
higher selling and general and administrative expenses offset most of the margin
recognized on these sales. Operating loss was $1 million less than the previous
year. Combined with a $2 million increase in net financial expense, the net loss
for the first three months of 1996 was $1 million greater than the first quarter
of 1995.
Net sales through the first quarter of fiscal 1996 increased $23 million
over the same period a year ago to $92 million. First quarter seed corn sales,
generated almost entirely outside of North America and Europe, totaled $39
million and represented $9 million of the total sales improvement. Latin
American seed corn sales increased $5 million to $21 million. This was the
result of increased market size and price in Argentina and higher unit sales in
Brazil. North America seed corn sales in the first quarter of fiscal 1996
totaled $4 million, an increase of $3 million, due to earlier deliveries to
dealers in the South. The Company's operations in the CIS and Australia
reflected first quarter sales of $3 million, an increase of $2 million over the
same period the previous year.
Current year-to-date wheat sales increased $8 million from the prior year,
almost entirely the result of volume increases within North America. An
attractive commodity price and excellent growing conditions resulted in a 16
percent acreage increase. Increased acreage combined with good product
performance and adequate supply helped grow year-to-date units 31 percent over
last year.
Year-to-date sorghum sales in fiscal 1996 increased $2 million over 1995
levels principally due to volume increases in Australia. Heavy rains in
Australia early in the season provided farmers the opportunity to plant
additional acres to sorghum in the current year.
Other products' sales for the first three months of fiscal 1996 increased $4
million over the same period a year ago due to higher specialty plant and
microbial product sales. Improved silage and hay inoculants contributed to the
$2 million increase in fiscal 1996 microbial sales over the same period a year
ago. Specialty plant product sales increased due to higher sales of high oleic
sunflower oil in first quarter of fiscal 1996 compared to the prior year.
The increase in sales for the first three months of fiscal 1996 provided an
additional $10 million in contribution over the same period a year ago. Current
period contribution as a percentage of sales was comparable to the same period a
year earlier.
Research expenses increased $4 million, or 13 percent over the first quarter
of 1995. Expansion of biotechnology projects and trait and technology
development and one-time costs associated with closing research stations were
the primary factors in this increase.
Selling and general and administrative expenses for the first three months
of fiscal 1996 increased $5 million over the same period a year earlier.
Although variable selling costs accounted for the majority of the $3 million in
additional current year selling expenses compared to the previous year, variable
selling costs (commissions and shipping costs) as a percentage of sales were
comparable between periods. The increase in general and administrative costs was
almost entirely the result of adopting Financial Accounting Standard No. 116
"Accounting for Contributions Made and Contributions Received" during first
quarter of fiscal 1996.
Net financial expense increased as a result of higher interest expense and
higher exchange losses. Higher average borrowings was the primary factor behind
a $1 million increase in interest expense from the same period a year ago. The
increase in exchange losses was principally the result of higher losses on
European intercompany transactions.
The estimated fiscal 1996 world-wide effective tax rate reflected in the
first quarter is 38 percent the same as was reflected in first quarter of fiscal
1995. The actual world-wide effective tax rate was reduced to 36.5 percent at
the end of fiscal 1995 due to a reduction in taxes on foreign earnings.
PIONEER HI-BRED INTERNATIONAL, INC.
PART II - OTHER INFORMATION
Item 6. - Exhibits and Reports on Form 8-K
a. Exhibits
Financial Data Schedule (Exhibit 27).
b. Reports on Form 8-K
No reports on Form 8-K were filed with the Commission during the
three months ended November 30, 1995.
PIONEER HI-BRED INTERNATIONAL, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PIONEER HI-BRED INTERNATIONAL, INC.
----------------------------------
(Registrant)
By /s/ CHARLES S. JOHNSON
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CHARLES S. JOHNSON
President and Chief Executive Office and
Director
By /s/ JERRY L. CHICOINE
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JERRY L. CHICOINE
Senior Vice President, Chief Financial Officer
and Corporate Secretary to the Board
Dated: January 11, 1996