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 November 30, 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
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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
--------- --------
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 27, 1996
- ------------------------------ ------------------------------------
Common Stock ($1.00 par value) 82,375,352
PIONEER HI-BRED INTERNATIONAL, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -- November 30, 1996,
August 31, 1996, and November 30, 1995......................... 3-4
Consolidated Condensed Statements Of Operations-- Three Months
Ended November 30, 1996 and 1995............................... 5
Consolidated Condensed Statements Of Cash Flows-- Three Months
Ended November 30, 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...................................... 8-11
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 1996 1996 1995
---------- ---------- ------------
CURRENT ASSETS
Cash and cash equivalents........... $ 68 $ 99 $ 84
Accounts and notes receivable, net.. 178 243 139
Inventories:
Finished seed..................... 415 209 359
Unfinished seed................... 401 163 347
Other............................. 12 10 8
Deferred income taxes............... 54 58 54
Prepaid expenses and other current assets 7 2 6
-------- --------- --------
Total current assets $ 1,135 $ 784 $ 997
LONG-TERM ASSETS........................ 83 81 39
PROPERTY AND EQUIPMENT, net of
accumulated depreciation and allowances
November 30, 1996 - $495
August 31, 1996 - $484
November 30, 1995 - $460............ 523 510 486
INTANGIBLES............................. 51 47 9
-------- -------- --------
$ 1,792 $ 1,422 $ 1,531
======== ======== ========
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 1996 1996 1995
------------ ---------- ------------
CURRENT LIABILITIES
Short-term borrowings................. $ 215 $ 13 $ 190
Current maturities of long-term debt.. 12 12 52
Accounts payable, trade............... 399 89 273
Accrued compensation.................. 37 65 30
Income taxes payable.................. 16 63 3
Other accruals........................ 43 46 35
-------- -------- --------
Total current liabilities........... $ 722 $ 288 $ 583
-------- -------- --------
LONG-TERM DEBT............................ $ 25 $ 25 $ 17
-------- -------- --------
DEFERRED ITEMS,
Postretirement benefits............... $ 40 $ 40 $ 38
Other................................. 46 44 39
-------- -------- --------
$ 86 $ 84 $ 77
-------- -------- --------
MINORITY INTEREST IN SUBSIDIARIES........ $ 5 $ 7 $ 5
-------- --------- --------
SHAREHOLDERS' EQUITY
Preferred stock, no par value....... $ -- $ -- $ --
Common stock, $1 par value.......... 93 93 93
Additional paid-in capital.......... 23 23 18
Retained earnings................... 1,207 1,272 1,052
Unrealized gain on available-for-sale
securities, net................... 13 11 --
Cumulative translation adjustment... (5) (3) 1
-------- -------- --------
$ 1,331 $ 1,396 $ 1,164
Less: Cost of common shares
acquired for the treasury........... (365) (364) (303)
Unearned compensation............... (12) (14) (12)
-------- -------- --------
$ 954 $ 1,018 $ 849
-------- -------- --------
$ 1,792 $ 1,422 $ 1,531
======== ======== ========
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,
1996 1995
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Net sales.......................................... $ 90 $ 92
-------- --------
Operating costs and expenses:
Cost of goods sold............................... $ 50 $ 53
Research and product development................. 30 31
Selling.......................................... 51 53
General and administrative....................... 30 31
-------- --------
$ 161 $ 168
-------- --------
Operating (loss)................................. $ (71) $ (76)
Investment income.................................. 4 4
Interest expense................................... (2) (4)
Net exchange (loss)................................ (2) (3)
-------- ---------
(Loss) before items shown below.................. $ (71) $ (79)
Provision for income taxes......................... 27 30
Minority interest and other........................ (1) --
--------- ---------
Net (loss)....................................... $ (45) $ (49)
======== ========
Net (loss) per common share*....................... $ (.55) $ (.59)
Dividends per common share*........................ $ .23 $ .20
Average shares outstanding......................... 82.4 83.4
* 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,
1996 1995
------- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)....................................... $ (45) $ (49)
Noncash items included in net (loss):
Depreciation and amortization.................. 19 18
Other.......................................... 6 --
Net change in assets and liabilities............. (151) (52)
-------- --------
Net cash used in operating activities.......... $ (171) $ (83)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................. $ (32) $ (30)
Other............................................ (10) (1)
-------- --------
Net cash used in investing activities.......... $ (42) $ (31)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds on short-term borrowings............ $ 203 $ 131
Dividends paid................................... (19) (17)
Other............................................ (2) --
-------- --------
Net cash provided by financing activities...... $ 182 $ 114
-------- --------
Net decrease in cash and cash equivalents...... $ (31) $ --
Cash and cash equivalents, beginning............... 99 84
-------- --------
CASH AND CASH EQUIVALENTS, ENDING.................. $ 68 $ 84
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) for:
Interest....................................... $ 3 $ 5
======== ========
Income taxes................................... $ 18 $ (7)
======== ========
See Notes to Consolidated Condensed Financial Statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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, 1996 and 1995, and the results of operations and
cash flows for the three months ended November 30, 1996 and 1995. Because of
the seasonal nature of the Company's business, the results of operations for
the three months ended November 30, 1996, 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, 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 totaled
$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 to
fund the research collaboration.
On January 23, 1996, the Company announced it had signed a research
collaboration with Human Genome Sciences. The investment by Pioneer totaled
$16 million, which will be paid at varying times during the next three years
to fund work performed under the collaboration.
4. Since April, 1996, Dekalb Genetics Corporation ("DeKalb") has filed five
lawsuits against Pioneer. The lawsuits allege that insect-resistant corn
products that use a Bt gene, and corn products resistant to glufosinate
herbicide, infringe on certain DeKalb patents.
After reviewing the Company's intellectual property position, all of
DeKalb's patent filings, and DeKalb's lawsuits, Pioneer believes DeKalb's
claims are without merit. Pioneer has denied DeKalb's allegations and raised
defenses that, if successful, would render DeKalb's patents invalid. Pioneer
believes that disposition of the lawsuits will not have a materially adverse
affect on the consolidated financial position and results of operations of
the Company. Pioneer also does not expect delays in the introductions of
advanced corn hybrids with insect and herbicide resistance because of these
lawsuits.
PIONEER HI-BRED INTERNATIONAL, INC.
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, 1996.
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, 1996,
consisted of $198 million in domestic commercial paper and $17 million in direct
short-term borrowings from foreign banks.
During fiscal 1997, 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
November 30, 1996, accounts and notes receivable increased compared to the
same period a year ago due to increased participation in our agricultural credit
programs.
Seed inventories, short-term borrowings, and accounts payable at November
30, 1996, are higher than the previous year due to additional acres planted and
higher yields harvested in the fall of 1996 compared to the fall of 1995.
The Company's investments in research collaborations, as noted in Note 3,
resulted in increased long-term and intangible assets and long-term debt. The
purchase and subsequent increase in market value of Mycogen Corporation common
stock accounted for virtually the entire increase in long-term assets at
November 30, 1996, compared to the prior year. This collaboration, along with
others, also resulted in higher intangible assets and long-term debt levels.
Property and equipment at November 30, 1996, increased over the same period
a year earlier mainly due to the construction of additional production capacity
in Europe and Latin America combined with other facilities in Johnston, Iowa.
MATERIAL CHANGES IN RESULTS OF OPERATIONS:
Net loss for the three months ended November 30, 1996 totaled $45 million,
or $.55 per share, compared to a net loss of $49 million, or $.59 per share, for
the first quarter of fiscal 1996. 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
1997. In North America, the performance advantage of Pioneer(R) brand seed corn
hybrids has improved considerably compared to the competition. On-farm yield
comparisons conducted by the Company in the fall of 1996 reflected that the
average of all Pioneer brand hybrids out-yielded the average competitor by 5.9
bushels per acre bushels, 1.2 bushels more than in 1995. The yield advantage of
Pioneer's ten leader hybrids reflected an average 7.6 bushel-per-acre advantage
over the average of our competition's hybrids. This improved performance is
creating a great deal of enthusiasm for the 1997 sales year.
Operating results in North America during the current year will be impacted
by higher per-unit seed corn costs compared to fiscal 1996. Although overall
costs are expected to increase, the average seed corn sales price is expected to
increase as well. The introduction of significant volumes of new technology
products in fiscal 1997, along with list price increases across the corn product
line, are expected to increase the net sales price per unit approximately seven
percent in North America. The resulting effect should be higher current year
per-unit margins.
While results in regions outside North America are more difficult to
predict, management believes that the Company is on target for future growth in
these regions as well, and will build on the record results of 1996.
As we look forward, all indications point to continued strong financial
performance. However, uncertainties exist that could affect the Company's
expectations, and 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 costs.
Three Months Ended November 30, 1996 compared to the Three Months Ended November
30, 1995
Total sales decreased $2 million, or three percent, for the first three
months of fiscal 1997 compared to the same period a year earlier. Seed corn
sales were comparable to those reflected last year. Lower wheat and other
product sales, partially offset by additional microbial sales, account for
principally the entire current period sales decrease from a year ago. However,
due to lower cost of goods sold, decreased fixed costs, and lower net financial
expense, the first quarter loss decreased $4 million from what was recorded a
year earlier.
Typically, sales during our first quarter are generated mostly from Southern
Hemisphere operations, North American wheat sales, and worldwide microbial
product sales.
First quarter seed corn sales totaled $39 million and are similar to those
recorded a year ago. During the current period, no seed corn was delivered in
North America. In the first quarter of fiscal 1996, Southern dealers took early
delivery of seed corn totaling $4 million. An increase in current period seed
corn sales outside North America offset this year's lack of early North American
deliveries.
Wheat sales in North America decreased $4 million due to declining wheat
acreage. Acreage decreased as a result of the late harvest of corn and soybeans
in the fall of 1996 combined with unfavorable weather conditions.
Microbial product sales increased $3 million this year due to strong
performance of premium inoculant products. Also impacting current period
comparisons was $4 million in sales to liquidate our specialty oils inventory in
the first quarter of fiscal 1996 that did not repeat in the current period.
These sales were at essentially no margin, which also primarily accounts for the
lower total cost of goods sold for the current period compared to a year ago.
Research expenses decreased $1 million from what was reflected for the same
period last year. The discontinuation of our vegetable product line and the
timing of certain other expenses, partially offset by amortization of recent
research collaborations, accounts for most of the current period decrease. On an
annual basis, research expenses are expected to increase eight to ten percent
above what was reflected in 1996.
Selling and administrative expenses for the first three months of fiscal
1997 decreased $3 million from the same period a year ago. Current period
variable selling costs (commissions and shipping costs) decreased as a result of
fewer unit sales, while fixed selling costs decreased primarily due to timing of
certain expenses. The decrease in administrative costs is principally the result
of the one-time effect of adopting FAS116 "Accounting for Contributions Made and
Contributions Received" during first quarter of 1996 not present in the current
period.
Current period net financial expense decreased $3 million from what was
recorded in the prior year's first quarter as a result of lower interest expense
and lower exchange losses. The retirement of the medium-term note program in
February 1996, combined with a lower average level of short-term borrowing in
the current year, reduced current period interest expense. Net exchange loss is
lower in the current period principally due to higher losses on European
intercompany transactions in the previous year.
The estimated fiscal 1997 worldwide effective tax rate of 37.5 percent
reflected in the first quarter is substantially unchanged from the 38 percent
effective tax rate reflected in the first quarter of fiscal 1996. The effective
tax rate reflected for first quarter is based on all information available to
date, however, uncertainties exist that could cause the effective tax rate on an
annual basis to vary from what is reflected in the current period. Some of these
uncertainties include the level of profits generated in foreign countries with
tax rates different from those in the United States and the impact from the
repatriation of foreign earnings during the year.
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, 1996.
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
-------------------------------------
CHARLES S. JOHNSON
Chairman, President, and Chief
Executive Officer
By /s/ JERRY L. CHICOINE
-------------------------------------
JERRY L. CHICOINE
Senior Vice President and Chief
Financial Officer
Dated: January 13, 1997