UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ------
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended May 31, 1996
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
(Address of principal executive offices)
Registrant's telephone number, including area code: (515) 248-4800
------------------
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 28, 1996
- ----------------------------- ----------------------------
Common Stock ($1.00 par value) 82,514,350
PIONEER HI-BRED INTERNATIONAL, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -- May 31, 1996,
August 31, 1995, and May 31, 1995.......................... 3-4
Consolidated Condensed Statements Of Operations-- Three Months
and Nine Months Ended May 31, 1996 and 1995................ 5
Consolidated Condensed Statements Of Cash Flows-- Nine Months
Ended May 31, 1996 and 1995................................ 6
Notes to Consolidated Condensed Financial Statements......... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 8-12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 13
Signatures............................................................ 14
PART I - FINANCIAL INFORMATION
PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited, in millions)
May 31, August 31, May 31,
ASSETS 1996 1995 1995
---------- ----------- --------
CURRENT ASSETS
Cash and cash equivalents........... $ 227 $ 84 $ 223
Accounts and notes receivable, net.. 407 209 357
Inventories:
Finished seed..................... 262 280 306
Unfinished seed................... 77 140 96
Other............................. 7 6 4
Prepaid expenses and other current
assets............................ 10 2 12
Deferred income taxes............... 47 49 66
-------- -------- --------
Total current assets.............. $ 1,037 $ 770 $ 1,064
INVESTMENTS AND OTHER
LONG-TERM ASSETS...................... 90 41 36
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and allowances
May 31, 1996 - $474
August 31, 1995 - $447
May 31, 1995 - $432................. 500 472 471
INTANGIBLES............................. 44 10 9
-------- -------- --------
$ 1,671 $ 1,293 $ 1,580
======== ======== ========
See Notes to Consolidated Condensed Financial Statements.
PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited, in millions)
LIABILITIES AND SHAREHOLDERS' May 31, August 31, May 31,
EQUITY 1996 1995 1995
----------- ---------- -------
CURRENT LIABILITIES
Short-term borrowings................. $ 15 $ 58 $ 23
Current maturities of long-term debt.. 8 53 52
Accounts payable, trade............... 182 58 182
Accrued compensation.................. 47 45 33
Income taxes payable.................. 154 23 137
Other accruals........................ 51 43 39
-------- -------- --------
Total current liabilities........... $ 457 $ 280 $ 466
-------- -------- --------
LONG-TERM DEBT............................ $ 30 $ 18 $ 14
-------- -------- --------
DEFERRED ITEMS, primarily income taxes
and retirement benefits............... $ 82 $ 75 $ 85
-------- -------- --------
MINORITY INTEREST IN SUBSIDIARIES........ $ 7 $ 7 $ 10
-------- -------- --------
SHAREHOLDERS' EQUITY
Preferred stock, no par value......... $ -- $ -- $ --
Common stock, $1 par value............ 93 93 93
Additional paid-in capital............ 20 18 16
Retained earnings..................... 1,326 1,118 1,185
Unrealized gain on available-for-sale
securities, net..................... 16 -- --
Cumulative translation adjustment..... (5) 1 3
-------- -------- --------
$ 1,450 $ 1,230 $ 1,297
Less: Cost of common shares
acquired for the treasury........... (339) (303) (277)
Unearned compensation............... (16) (14) (15)
-------- -------- --------
Total stockholders' equity.......... $ 1,095 $ 913 $ 1,005
-------- -------- --------
$ 1,671 $ 1,293 $ 1,580
======== ======== ========
See Notes to Consolidated Condensed Financial Statements.
PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited, in millions)
Three Months Ended Nine Months Ended
May 31, May 31,
1996 1995 1996 1995
-------------------------- ----------------------
Net sales.......................... $ 1,168 $ 1,049 $ 1,541 $ 1,395
-------- -------- -------- --------
Operating costs and expenses:
Cost of goods sold............... $ 442 $ 384 $ 638 $ 566
Research and development......... 35 33 97 91
Selling.......................... 187 170 306 280
General and administrative....... 26 33 93 95
-------- -------- -------- --------
$ 690 $ 620 $ 1,134 $ 1,032
-------- -------- -------- --------
Operating income................. $ 478 $ 429 $ 407 $ 363
Investment income.................. 7 5 16 14
Interest expense................... (3) (1) (10) (8)
Net exchange gain/(loss)........... -- 2 (1) 6
-------- -------- -------- --------
Income before income taxes....... $ 482 $ 435 $ 412 $ 375
Provision for income taxes......... (178) (162) (151) (139)
Minority interest and other........ (1) (1) (3) (3)
-------- -------- -------- --------
Net income....................... $ 303 $ 272 $ 258 $ 233
======== ======== ======== ========
Income per common share*........... $ 3.64 $ 3.23 $ 3.10 $ 2.75
Dividends per common share*........ $ .20 $ .17 $ .60 $ .51
Weighted average number of common
shares outstanding................ 83.1 84.2 83.3 84.7
* Not in millions
See Notes to Consolidated Condensed Financial Statements.
PIONEER HI-BRED INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
Nine Months Ended
May 31,
1996 1995
----------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................... $ 258 $ 233
Noncash items included in net income:
Depreciation and amortization.................. 55 54
Other.......................................... 8 (1)
Net change in assets and liabilities............. 130 (35)
-------- --------
Net cash provided by operating activities...... $ 451 $ 251
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes receivable............ $ 5 $ 5
Disbursements for notes receivable............... (1) (4)
Capital expenditures............................. (76) (59)
Disbursements for investments and research
collaborations................................. (48) --
Other............................................ (4) (3)
-------- --------
Net cash used in investing activities.......... $ (124) $ (61)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) proceeds on short-term borrowings. $ (39) $ 11
Principal payments on long-term borrowings....... (54) (1)
Purchase of treasury stock....................... (37) (74)
Dividends paid................................... (50) (43)
-------- --------
Net cash used in financing activities.......... $ (180) $ (107)
-------- --------
Effect of foreign currency exchange rate changes on
cash and cash equivalents........................ $ (4) $ 5
-------- --------
Net increase in cash and cash equivalents....... $ 143 $ 88
Cash and cash equivalents, beginning............... 84 135
-------- --------
CASH AND CASH EQUIVALENTS, ENDING.................. $ 227 $ 223
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for:
Interest................................ $ 12 $ 9
======== ========
Income taxes............................ $ 16 $ 40
======== ========
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 May 31, 1996 and 1995, and the results of operations and cash
flows for the nine months ended May 31, 1996 and 1995.
2. The Company has guaranteed the repayment of principal and interest on
certain obligations of Village Court Associates, an affiliated real estate
venture. At May 31, 1996, such guarantees totaled approximately $23 million.
3. On December 13, 1995, the Company and Mycogen Corporation signed a research
collaboration and investment agreement. The investment by Pioneer will total
$51 million, of which $30 million was for the purchase of three million
shares of Mycogen common stock on the date of signing and the remainder
payable over the next four years to fund the research collaboration.
On January 23, 1996, the Company signed a research collaboration with Human
Genome Sciences. The investment by Pioneer will total $16 million, which
will be paid over the next three years to fund work performed under the
collaboration.
4. In April, 1996, DeKalb Genetics Corporation ("DeKalb") filed two suits
against Pioneer alleging that the Company's insect resistant corn products
that use a BT gene and the Company's corn product that is resistant to a
glufosinate-ammonium herbicide infringe on DeKalb's patents. The suits seek
damages and injunctive relief.
After reviewing the Company's intellectual property position, DeKalb's
patent filings, and DeKalb's complaint, the Company believes DeKalb's claims
are without merit. The Company has denied Dekalb's allegations and raised
defenses that, if successful, would render DeKalb's patents invalid. The
Company believes that disposition of the suits will not have a materially
adverse effect on the consolidated financial position and results of
operations of the Company. The Company also does not expect delays in the
introductions of advanced corn hybrids with insect and herbicide resistance
because of these lawsuits.
5. Certain individual financial statement categories were reclassified for the
nine months ended May 31, 1995, to conform with the presentation adopted for
the nine months ended May 31, 1996.
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 May 31, 1996,
consisted of $15 million in direct short-term borrowings from foreign banks.
During fiscal 1996, the Company has available the following domestic lines of
credit:
(in millions)
Revolving Seasonal Total
--------- -------- -----
First quarter............... $200 $100 $300
Second quarter.............. $200 $100 $300
Third quarter............... $200 none $200
Fourth quarter.............. $200 none $200
Seed inventories at May 31, 1996, are lower than the previous year due to
fewer acres planted and lower yields harvested in the fall of 1995 compared to
the fall of 1994, combined with increased current year-to-date unit sales over
prior year levels.
The purchase and subsequent increase in market value of Mycogen Corporation
common stock as noted in Note 3, accounts for virtually the entire increase in
long-term assets at May 31, 1996, compared to the prior year.
Property and equipment at May 31, 1996, increased over the same period a
year earlier mainly due to the construction of additional production capacity in
Europe and Latin America and facilities in Johnston, Iowa.
At May 31, 1996, intangibles and long-term debt increased from prior year
levels due to additional research investments as noted in Note 3.
During the nine months ended May 31, 1996, the Company repurchased 701,400
shares of its stock for a total of $37 million. At May 31, 1996, authorized
shares remaining to be repurchased totaled approximately three million.
MATERIAL CHANGES IN RESULTS OF OPERATIONS:
Net income for the nine months ended May 31, 1996 totaled $258 million,
compared to $233 million for the same period of fiscal 1995. Earnings per share
through third quarter of fiscal 1996 totaled $3.10, an improvement of $.35 per
share, or 13 percent over year-to-date fiscal 1995 results.
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.
Nine months into fiscal 1996, the Company is on track for another record
year and should meet its two primary performance targets, 20 percent return on
equity and double-digit earnings growth. All information to date reflects that
seed corn acreage in North America will rise eight percent or more over 1995
levels, which will have a positive effect on North American seed corn sales. An
approximate two percent increase in the average per-unit sales price of seed
corn sold in North America will also positively impact current year sales.
Seed corn operating results in North America will be negatively impacted by
higher seed costs. Most of the additional costs are due to the smaller crop
harvested in the fall of 1995 compared to the previous year, increased grower
payments resulting from higher commodity costs, and additional provisions for
inventory reserves.
Outside North America, most operations are showing good earnings growth in
fiscal 1996. Operations in Europe, Latin America, and Asia should improve over
prior year levels.
Uncertainties still exist that could affect the Company's overall financial
results, therefore, fluctuations in expected results are likely as more
information becomes available. Some of the important factors that could cause
actual results to vary significantly from our expectations include, weather,
government programs/approvals, commodity prices, changes in corn acreage,
intellectual property positions, product performance, customer preferences,
currency fluctuations, and management of costs.
Nine Months Ended May 31, 1996 compared to the Nine Months Ended May 31, 1995
Net Sales and Operating Profit
(Unaudited, in millions)
Quarter Ended Nine Months Ended
May 31, Increase/ May 31, Increase/
1996 1995 (Decrease) 1996 1995 (Decrease)
---------------------------------- -----------------------------------
Net sales:
Corn................ $ 962 $ 871 $ 91 $ 1,235 $ 1,138 $ 97
Soybeans............ 136 112 24 146 120 26
Other............... 70 66 4 160 137 23
-------- -------- -------- -------- -------- --------
Total net sales....... $ 1,168 $ 1,049 $ 119 $ 1,541 $ 1,395 $ 146
-------- -------- -------- -------- -------- --------
Operating income:
Corn................ $ 448 $ 414 $ 34 $ 432 $ 404 $ 28
Soybeans............ 30 27 3 17 14 3
Other............... 15 10 5 13 2 11
-------- -------- -------- -------- -------- --------
Product line operating
income............ $ 493 $ 451 $ 42 $ 462 $ 420 $ 42
Indirect general and
administrative
expenses........ (15) (22) 7 (55) (57) 2
-------- -------- -------- -------- -------- --------
Operating income...... $ 478 $ 429 $ 49 $ 407 $ 363 $ 44
-------- -------- -------- -------- -------- --------
Units delivered, North America:
Corn................ 9.7 8.9 .8 11.3 10.3 .9
Soybeans............ 9.4 8.4 1.0 10.0 9.0 1.0
Operating income for the first nine months of fiscal 1996 increased from the
same period a year ago principally the result of higher seed corn unit sales.
Unit sales in North America have increased as a result of additional acreage
planted to corn in fiscal 1996 over the prior year. Within Europe, operations
have shown improvement as a result of increases in both unit sales and sales
price. Higher fixed costs partially offset these improvements due to additional
investments in research and higher selling expenses.
SEED CORN
Fiscal 1996 year-to-date seed corn operating income increased $28 million
over the same period last year. Operations within North America account for $12
million of the increase. European operations accounted for virtually all of the
remaining improvement.
Higher seed corn deliveries compared to the prior year was the primary
factor affecting North American operations. Through third quarter, current year
unit sales increased over 900,000 units from the prior year, contributing $38
million in operating income over fiscal 1995. The increase in unit sales is in
line with the estimated eight percent or more increase in North American seed
corn acreage.
North American operating results were positively affected by an increase in
the average seed corn selling price per unit, as well. Through third quarter of
fiscal 1996, this increase contributed $4 million to the current year
improvement in operating income. For the year, the per unit selling price of
seed corn in North America is expected to increase approximately two percent.
The increase is the result of a change in mix to higher-priced better-performing
premium hybrids. The 1996 list price for all hybrids remained unchanged from
1995.
Higher seed costs also impacted current year results. The smaller crop
harvested in fiscal 1995 compared to fiscal 1994, higher commodity costs, and
increased provisions for inventory reserves reduced current year operating
income $21 million.
Research expenses for corn increased $5 million, or ten percent, from
year-to-date levels a year ago. The primary factors in this increase were
expansion of biotechnology projects and trait and technology development
combined with first year amortization related to research collaborations.
Seed corn selling and administrative costs in North America increased $4
million, or 5 percent, from 1995 year-to-date levels. The major components of
this increase were higher personnel costs due to merit increases and training
along with higher costs associated with customer incentives as a result of
higher cost gifts awarded in the current year.
Total Seed Corn Sales and Units
(In millions)
Sales Dollars 80MK Unit Sales
Nine Months Ended Nine Months Ended
May 31, May 31,
1996 1995 1996 1995
-------------------------- ----------------------
North America...................... $ 853 $ 779 11.265 10.337
Southern Europe.................... 139 129 0.993 0.987
Italy.............................. 87 75 0.613 0.584
Central Europe..................... 46 42 0.735 0.640
Northern Europe.................... 30 37 0.247 0.318
Latin America...................... 26 22 0.378 0.344
Mexico............................. 11 18 0.224 0.277
Other.............................. 43 36 0.695 0.561
-------- -------- -------- --------
Total............................ $ 1,235 $ 1,138 15.150 14.048
======== ======== ======== ========
European operations accounted for virtually all of the remaining $16 million
increase in year-to-date seed corn operating income. Current year operations in
Southern Europe and Italy represented most of the improvement within the region.
Within Southern Europe, several countries experienced increases in market size,
market share, and/or sales price which combined to improve current year
operating income for the region. Operations in Italy improved $3 million
principally due to a five percent increase in unit sales, the result of
increased market share and market size, partially offset by higher seed costs.
SOYBEANS
Year-to-date soybean operating income improved over 20 percent from prior
year levels almost entirely from North American operations, which continue to
grow and contributed more to the Company's overall results in 1996 than in any
previous year. Unit sales in North America have increased over 11 percent, a
result of market share gains and timing of deliveries, accounting for $4 million
in operating income improvements over the prior year. An increase in current
year list prices increased the average per-unit sales price, however, higher
per-unit cost of sales, the result of higher commodity costs, offset the entire
sales price improvement. Increased fixed selling and administrative expenses and
additional investments in research account for the remaining change.
OTHER PRODUCTS
Year-to-date other products operating income for fiscal 1996 improved $11
million over the prior year. Improvements in various products contributed to the
current year increase. Acreage increases in North America contributed to
additional current year wheat unit sales, providing for an additional $3 million
in other products operating income. Sorghum operating income improved $2
million, the result of additional unit sales in the Southern Plains of North
America due to increased acreage, combined with an increase in the per-unit
sales price. Year-to-date canola operating results improved $4 million as a
result of timing of seed sales recognition in North America.
INDIRECT GENERAL AND ADMINISTRATIVE EXPENSES
Current year indirect general and administrative expenses decreased $2 million
from 1995 levels. During the year, the Company undertook an active fixed cost
management reduction program. Partially offsetting these savings was the
adoption of Financial Accounting Standard No. 116 "Accounting for Contributions
Made and Contributions Received" which required the company to accrue certain
multi-year pledges which otherwise would have been expensed when paid.
NET FINANCIAL AND TAXES
The strengthening of the U.S. dollar against certain European currencies and
translation gains in Mexico recorded in fiscal 1995 not present in the current
year account for principally all of the $7 million change in net financial
income through third quarter of fiscal 1996 compared to the same period a year
earlier.
The estimated fiscal 1996 world-wide effective tax rate reflected in the
third quarter is 36.5 percent. The actual world-wide effective tax rate for
fiscal 1995 was 36.5 percent.
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 May 31, 1996.
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
CHARLES S. JOHNSON
President and Chief Executive Officer
and Director
By /s/JERRY L. CHICOINE
JERRY L. CHICOINE
Senior Vice President, Chief Financial
Officer and Corporate Secretary to the Board
Dated: July 12, 1996