SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the nine month period ended May 31, 1995 or
Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act 1934
For the transition period from to
Commission file number: 0-17005
DEKALB Genetics Corporation
(Exact name of registrant as specified in its charter)
Delaware 36-3586793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3100 Sycamore Road, DeKalb, Illinois 60115
(Address of principal executive offices) (Zip Code)
815-758-3461
(Registrant's telephone number,
including area code)
Indicate 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
Title of class Outstanding as of May 31, 1995
Class A Common, no par value 792,376
Class B Common, no par value 4,371,332
Exhibit index is located on page 2
Total number of pages 60
DEKALB GENETICS CORPORATION
INDEX
Page No.
Part I - Financial Information (Unaudited except for the
Condensed Consolidated Balance Sheet as of August 31, 1994):
Management's Discussion and Analysis of Financial Condition
and Results of Operations 3-5
Condensed Consolidated Statements of Operations for the nine
months ended May 31, 1995 and 1994 6
Condensed Consolidated Statements of Operations for the three
months ended May 31, 1995 and 1994 7
Condensed Consolidated Balance Sheets, May 31, 1995 and 1994
and August 31, 1994 8
Condensed Consolidated Statements of Cash Flows for the nine
months ended May 31, 1995 and 1994 9
Notes to Condensed Consolidated Financial Statements 10-11
Part II - Other Information 12
EXHIBIT 10 - Sales Agreement with Central Farms of America, Inc. 13-58
EXHIBIT 11 - Computation of Net Earnings per Common and Common
Equivalent Share for the nine months ended May 31, 1995
and 1994 and for the three months ended May 31, 1995 and 1994. 59-60
Management's Discussion and Analysis of
Financial Condition and Results of Operations
and Financial Position
Net earnings from continuing operations for the first nine months of fiscal
1995 were $10.7 million ($2.03 per share) compared with $10.3 million ($1.98
per share) for the same period of the prior year. Excluding an after-tax
benefit of $2.1 million ($.40 per share) related to the suspension of the
defined benefit portion of the Company's retirement program, net earnings from
continuing operations in fiscal 1994 were $8.2 million ($1.58 per share). The
$2.5 million increase in earnings from continuing operations was due to a
significant improvement in seed segment earnings partly offset by lower swine
segment profitability and a higher tax rate.
Net earnings of $11.9 million ($2.27 per share) for fiscal 1995 included a
$1.2 million ($.24 per share) gain from the disposition of the Company's
poultry business segment. Fiscal 1994 net earnings of $9.4 million ($1.80 per
share) included a $0.5 million loss ($.10 per share) from discontinued
operations and an expense of $.4 million ($.09 per share) related to adopting
the new standard of accounting for income taxes.
Consolidated revenues in fiscal 1995 were $294.3 million compared with $276.9
million the prior year. The six percent increase was primarily due to higher
North American and Argentine corn selling prices and sales volumes. Swine
revenues decreased nearly 12 percent as the result of lower market hog prices
and reduced male genetic revenues.
Fiscal 1995 third quarter net earnings from continuing operations were up
significantly over the same period a year ago. Excluding the benefit related
to the retirement program ($1.1 million or $.20 per share) prior year third
quarter earnings were $1.2 million compared with $3.6 million in the third
quarter of fiscal 1995. North American seed earnings increased due to higher
corn margins while lower market hog prices caused the swine segment to report
a $0.1 million loss compared with $2.8 million of earnings in the third
quarter of fiscal 1994. International seed segment earnings increased due to
higher royalty income from Europe.
Quarterly Industry Segment Revenues and Earnings (In Millions)
(Unaudited)
Third Quarter Year-to-Date
May 1995 May 1994 May 1995 May 1994
Revenues:
North American Seed $ 75.5 $ 73.5 $191.0 $181.1
International Seed 17.6 14.4 67.7 55.4
Swine 11.8 14.3 35.6 40.4
Total Revenues $104.9 $102.2 $294.3 $276.9
Earnings:
North American Seed $ 6.2 $ 4.0 $ 20.2 $ 13.0
International Seed 2.9 (0.4) 8.3 5.5
Swine (0.1) 2.8 (1.4) 5.5
Total Operating Earnings 9.0 6.4 27.1 24.0
General corporate expenses (0.7) (1.4) (3.2) (4.1)
Net interest expense (2.4) (2.0) (6.7) (5.8)
Earnings from continuing operations
before income taxes and accounting change 5.9 3.0 17.2 14.1
Income tax provision 2.3 0.8 6.5 3.8
Earnings from continuing operations before
cumulative effect of accounting change 3.6 2.2 10.7 10.3
Discontinued Operations:
Gain/(Loss) from operations, net of tax 0.1 - (0.5) (0.5)
Gain on disposition, net of tax 1.7 - 1.7 -
Earnings before cumulative effect
of accounting change 5.4 2.2 11.9 9.8
Cumulative effect of accounting change - - - (0.4)
Net Earnings $ 5.4 $ 2.2 $ 11.9 $ 9.4
North American Seed
North American seed segment earnings for the first nine months of fiscal 1995
were $7.2 million higher than a year earlier as revenues increased $9.9
million or six percent. Higher average selling prices for corn and an
increase in soybean sales volume generated the revenue increase. The average
selling price for corn was 7% higher, primarily due to an improved sales mix.
Improved earnings were largely the result of the higher corn selling prices
and lower unit costs. As a result of the large production crop harvested last
fall following very favorable growing conditions during the summer of 1994,
margin per unit improved over $8.00 per unit. Fiscal 1995 corn sales volume
is expected to be up over a year ago despite a nine percent reduction in corn
planted acreage. However, returns have yet to be finalized due to the rain-
delayed planting season.
Soybean sales volume was higher in the current year nine months due to
increased demand for DEKALB's product combined with higher soybean planted
acreage. As corn planted acreage decreased four percent from planting
intentions, farmers were forced to plant alternative crops, including
soybeans, most of which occurred after May 31.
North American seed segment earnings for the third quarter of fiscal 1995 were
$2.2 million higher than last year largely due to higher corn margins.
International Seed
International seed segment earnings for the first nine months were $2.8
million higher than a year ago. Increased royalty income from Western Europe
and higher earnings in Argentina were partly offset by lower equity earnings
from Mexico and lower royalty earnings in Eastern Europe. Argentine corn
operations rebounded from the adverse growing conditions last year and
experienced higher average selling prices and volume in the current year. On
the other hand, in Mexico, drought and the lack of agricultural credit due to
the devaluation of the peso significantly reduced corn sales opportunities. In
addition, seed corn production in Mexico was substantially below target,
increasing production cost per unit. These two factors, coupled with higher
interest costs, caused earnings from our joint venture in Mexico to decrease
nearly $2.0 million.
Third quarter international seed segment earnings increased $3.3 million in
fiscal 1995 compared with the same period of fiscal 1994. Argentine earnings
improved over the prior year third quarter and French royalty income was
higher than a year ago.
Swine
Swine segment results for the first nine months were $6.9 million lower than a
year earlier as revenues decreased 12 percent. The revenue decrease resulted
from lower market hog prices combined with lower male genetic revenues which
resulted from weak demand for boars. Market-driven prices caused revenues
from the female lines of the breeding stock business to be flat, even though
sales volume increased.
Since over 40 percent of DEKALB's sales volume is by-product market hogs,
lower market prices have a direct impact on profitability. Average market hog
prices for the nine months dropped almost $11.00 per hundred weight ($37.98
vs. $48.86) from a year ago, causing swine to report a loss of $1.4 million in
the first nine months of fiscal 1995 compared with earnings of $5.5 million
in the same period of fiscal 1994. Swine earnings are not expected to improve
significantly by the end of the fiscal year. Although hog prices are
improving in the fourth quarter, breeding stock demand has softened.
Third quarter swine segment earnings were $2.9 million less than the prior
year third quarter due to lower market hog prices and lower boar sales volume.
Market hog prices for the current quarter averaged nearly $39 per hundred
weight compared with $49 a year ago.
General
The effective tax rate increased from 28 percent in the first nine months of
fiscal 1994 to 38 percent for the same period in fiscal 1995. A change in the
earnings mix, primarily the loss in Mexico, was the principal factor causing
the increase. For each interim period, the tax rate is determined from an
estimate of full year earnings and the resultant tax. The first nine months
of fiscal 1994 included increased tax benefits associated with international
seed losses incurred in prior years.
First quarter fiscal 1994 net earnings reflected the adoption of Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes". The cumulative effect of this accounting change was an after-tax
charge to net earnings of $0.4 million ($.09 per share).
In October 1993, the Board of Directors approved management's suspension of
the defined benefit portion of the Company's retirement program. The
cumulative effect on continuing operations of this suspension through the
third quarter of 1994 was a benefit of $2.1 million after-tax.
On April 28, 1995, the Company sold the stock of its wholly-owned poultry
subsidiary to Central Farm of America, Inc., an affiliate of Toshoku, LTD., a
Tokyo-based trading company specializing in food and food products. A gain of
$1.7 million, after-tax, was recorded as a result of the sale while
discontinued operations reported a loss of $0.5 million, after-tax, for the
nine month period. Net proceeds from the sale provided over $10 million in
cash to be reinvested in the Company's seed and swine businesses.
Fourth quarter will primarily reflect swine operating results and corporate
and interest expenses plus adjustments related to estimated full year seed
returns and expenses recorded through the first nine months. Prior year
fourth quarter results also included earnings from the poultry business and
international seed royalty recognition due to contract changes, neither of
which will occur in the current year fourth quarter.
Financial Position
During the first nine months of fiscal 1995, net cash outflow from operations
was $21.0 million greater than a year ago. Cash requirements for increased
seed production costs associated with the 1994 seed crop caused the change.
Cash requirements for the first nine months were provided by earnings and
existing short-term credit facilities. Committed credit lines include a $50
million revolving credit facility through December 31, 1997 and a $20 million
facility available through November 26, 1995. These agreements contain
various restrictions on the activities of the Company as to maintenance of
working capital and tangible net worth, amount and type of indebtedness, and
the acquisition or disposition of capital shares or assets of the Company and
its subsidiaries.
Management believes its operating cash flow and existing lines of credit are
sufficient to cover normal and expected working capital needs, capital
expenditures, dividends and debt maturities.
DEKALB Genetics Corporation
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months ended May 31, 1995 and 1994
(Dollars in millions except per share amounts)
(Unaudited)
May May
1995 1994
Revenues 294.3 276.9
Cost of revenues 148.5 151.3
GROSS MARGIN 145.8 125.6
Selling expenses 60.9 54.7
Research and development cost 37.3 36.0
General and administrative expense 20.9 14.2
119.1 104.9
OPERATING EARNINGS 26.7 20.7
Interest expense, net of interest income of
$0.3 in 1995 and $0.2 in 1994 (6.7) (5.8)
Other expense, net (2.8) (0.8)
Earnings from continuing operations before income taxes and
accounting change 17.2 14.1
Income tax provision 6.5 3.8
Earnings from continuing operations before cumulative effect
of accounting change 10.7 10.3
Discontinued Operations
Loss from operations, net of tax (0.5) (0.5)
Gain on disposition, net of tax 1.7 -
Earnings before cumulative effect of accounting change 11.9 9.8
Cumulative effect of accounting change - (0.4)
NET EARNINGS $ 11.9 $ 9.4
Earnings per share from continuing operations before
cumulative effect of accounting change $ 2.03 $ 1.98
Discontinued Operations:
Loss from operations, net of tax (0.08) (0.09)
Gain on disposition, net of tax 0.32 -
Earnings per share before cumulative effect of accounting change 2.27 1.89
Cumulative effect of accounting change - (0.09)
NET EARNINGS PER SHARE $ 2.27 $ 1.80
Dividends per Share $ 0.60 $ 0.60
The accompanying notes are an integral part of the financial statements.
-6-
DEKALB Genetics Corporation
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended May 31, 1995 and 1994
(Dollars in millions except per share amounts)
(Unaudited)
May May
1995 1994
Revenues 104.9 102.2
Cost of revenues 50.6 55.8
GROSS MARGIN 54.3 46.4
Selling expenses 24.7 21.6
Research and development cost 14.4 14.2
General and administrative expense 7.1 5.9
46.2 41.7
OPERATING EARNINGS 8.1 4.7
Interest expense, net of interest income of
$0.1 in 1995 and 1994. (2.4) (2.0)
Other income, net 0.2 0.3
Earnings from continuing operations before income taxes 5.9 3.0
Income tax provision 2.3 0.8
Earnings from continuing operations 3.6 2.2
Discontinued Operations:
Earnings from operations, net of tax 0.1 -
Gain on disposition, net of tax 1.7 -
NET EARNINGS $ 5.4 $ 2.2
Earnings per share from continuing operations before
cumulative effect of accounting change 0.68 0.43
Discontinued operations:
Earnings from operations, net of tax 0.02 -
Gain on disposition, net of tax 0.32 -
NET EARNINGS PER SHARE $ 1.02 $ 0.43
Dividends per Share $ 0.20 $ 0.20
The accompanying notes are an integral part of the financial statements.
-7-
DEKALB Genetics Corporation
CONDENSED CONSOLIDATED BALANCE SHEETS
May 31, 1995 and 1994 and August 31, 1994
(Dollars in millions)
(Unaudited)
May May August
1995 1994 1994
Current assets:
Cash and cash equivalents ($2.5) $1.6 $6.2
Notes and accounts receivable, net of allowance for
doubtful accounts of $2.4 at May 31, 1995, $2.0 at
May 31, 1994, and $2.2 at August 31, 1994 109.8 106.2 44.4
Inventories (Note 2) 89.6 82.5 99.4
Deferred income taxes 4.3 5.0 4.3
Other current assets 4.0 6.4 7.0
Total current assets 205.2 201.7 161.3
Investments in and advances to related companies 2.9 6.7 8.0
Intangible assets 40.3 41.7 41.3
Other assets 3.6 9.3 8.9
Property, plant and equipment, at cost 237.5 226.4 230.8
Less accumulated depreciation and amortization (139.7) (134.0) (135.1)
Net property, plant and equipment 97.8 92.4 95.7
Total assets $349.8 $351.8 $315.2
Current liabilities:
Notes payable $59.7 $69.1 $45.1
Accounts payable, trade 3.4 5.7 6.4
Other accounts payable 7.2 11.2 13.2
Other current liabilities 52.6 42.4 27.7
Total current liabilities 122.9 128.4 92.4
Deferred compensation and other credits 5.6 5.3 5.4
Deferred income taxes 9.0 11.9 11.1
Long-term debt, less current maturities 85.0 85.1 85.0
Commitments and contingent liabilities (Note 4)
Shareholders' equity:
Capital stock:
Common, Class A; authorized 5,000,000 shares 0.1 0.1 0.1
Common, Class B; authorized 15,000,000 shares 0.4 0.4 0.4
Capital in excess of stated value 80.8 80.0 80.1
Retained earnings 54.5 45.7 45.8
Currency translation adjustments (Note 3) (6.0) (2.7) (2.7)
129.8 123.5 123.7
Less treasury stock, at cost (2.5) (2.4) (2.4)
Total shareholders' equity 127.3 121.1 121.3
Total liabilities and shareholders' equity $349.8 $351.8 $315.2
The accompanying notes are an integral part of the financial statements.
-8-
DEKALB Genetics Corporation
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended May 31, 1995 and 1994
(Dollars in millions)
(Unaudited)
May May
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $11.9 $9.4
Adjustments to reconcile net income to net cash
flow from operating activities:
Depreciation and amortization 8.2 8.1
Equity earnings, net of dividends 1.7 1.3
Cumulative effect of accounting change - 0.4
Provision for deferred income taxes 1.1 1.5
Provision for inventory valuation 11.0 10.0
Loss from discontinued operations 0.5 0.5
Gain on disposition of discontinued operations (1.7) -
Other 0.1 0.7
Changes in assets and liabilities:
Receivables (66.0) (73.3)
Inventories (1.2) 23.9
Other current assets 0.6 (0.3)
Accounts payable (9.0) 5.6
Accrued expenses 18.7 13.1
Other assets and liabilities 2.3 (1.7)
Net cash flow from operating activities ($21.8) ($0.8)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment (9.7) (12.2)
Proceeds from sale of property, plant and equipment 0.8 0.6
Proceeds from sale of discontinued operations 12.5 -
Cash from (used by) discontinued operations (2.5) (0.3)
Net cash flow from investing activities $1.1 ($11.9)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuing debt 14.6 14.1
Principal payments made on debt - (0.2)
Dividends paid (3.1) (3.1)
Other 0.5 0.1
Net cash flow from financing activities $12.0 $10.9
Net effect of exchange rates on cash - (0.1)
Net decrease in cash and cash equivalents (8.7) (1.9)
Cash and cash equivalents at August 31 6.2 3.5
Cash and cash equivalents at the end of May ($2.5) $1.6
Supplemental Cash Flow Information
Cash paid during the period for:
Income taxes $5.0 $2.0
Interest $6.7 $5.5
The accompanying notes are an integral part of the financial statements.
-9-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated financial statements included herein are presented in
accordance with the requirements of Form 10-Q and consequently do not
include all of the disclosures normally required by generally accepted
accounting principles or those normally made in the Company's annual Form
10-K filing. In order to facilitate a better comparison of the highly
seasonal seed operations of the Company, a Condensed Consolidated Balance
Sheet at May 31, 1994 is included herein as part of the condensed
consolidated financial statements.
The results presented are unaudited but include, in the opinion of
management, all adjustments of a normal recurring nature necessary for a
fair statement of the results of operations and financial position for the
respective interim periods.
Certain costs and expenses incurred in the North American and international
seed businesses are charged against income as sales are recognized for
interim reporting purposes. The Company believes this method more closely
matches revenues with expenses and results in more comparability of
reporting periods within the year. Since there are only minor North
American seed sales recorded in the first and fourth quarters, this method
defers first quarter expenses related to sales which will occur later in
the year, primarily in the second quarter; it also anticipates expenses
incurred in the fourth quarter, primarily in the third quarter. Southern
hemisphere international seed sales occur largely in the first and second
quarters and this same method anticipates future expenses from the third
and fourth quarters and matches them against the first and second quarter
revenues.
2. Inventories, valued at the lower of cost or market (in millions), were as
follows:
May May August
1995 1994 1994
Commercial seed $ 78.6 $ 70.5 $ 88.1
Commercial swine 7.8 8.1 8.1
Supplies and other 3.2 3.7 3.2
$ 89.6 $ 82.5 $ 99.4
3. Effective in fiscal 1995, the Company accounts for translation of foreign
currency in countries formerly considered hyperinflationary in accordance
with Statement of Financial Accounting Standards No. 52 (SFAS No. 52),
"Foreign Currency Translation." Foreign-currency assets and liabilities
are translated into their U.S. dollar equivalents based on rates of
exchange prevailing at the end of the respective period. Translation
adjustments resulting from translating foreign currency financial
statements of consolidated subsidiaries into their U.S. dollar equivalents
are reported separately and accumulated in a separate component of
stockholders' equity. The following summarizes the activity in the
translation adjustment account:
(In millions)
May May
1995 1994
Balance at September 1 $(2.7) $(2.5)
Translation gain/(loss) (3.3) (0.2)
Balance at end of May $(6.0) $(2.7)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(continued)
Aggregate exchange gains and losses arising from the translation of foreign
currency transactions in other than the functional currency of the
particular entity are included in income.
4. The Company and its subsidiaries are defendants in various legal actions
arising in the course of business activities. In the opinion of
management, these actions will not result in a material adverse effect on
the Company's consolidated operations or financial position.
Most potential property losses are self-insured.
5. In October 1993, the Board of Directors approved management's suspension of
the defined benefit portion of the Company's retirement program. The
cumulative effect of this suspension through the third quarter of 1994 was
a benefit of $2.3 million after-tax, including $0.2 million related to
discontinued operations.
6. Effective September 1, 1993, the Company changed its method of accounting
for income taxes by adopting the provisions of Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes".
SFAS 109 requires a change from the deferred method of accounting for
income taxes under APB Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the expected future
tax consequences attributable to differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates
expected to apply in the years in which the temporary differences are
expected to reverse.
The adoption of SFAS 109 resulted in the recognition of $0.4 million, $.09
per share, of deferred tax expense. This amount was included as a charge
to net earnings as the cumulative effect of change in accounting principle
in the first quarter of fiscal 1994.
7. Certain corporate expense reclassifications have been made for segment
comparability purposes. These reclassifications had no effect on net
earnings.
In addition, during the current quarter, the Company began deferring
certain costs associated with its swine licensing business.
8. On April 28, 1995 the Company sold its poultry operations to Central Farm
of America, Inc., an affiliate of Toshoku, Ltd., for $12.5 million in cash.
Accordingly, the poultry business is reported as a discontinued operation
and the consolidated financial statements have been reclassified to report
separately the net assets and operating results of the business. The
Company's operating results for prior years have been restated to reflect
continuing operations.
Net earnings from discontinued operations for the nine months included an
operating loss of $0.5 million, net of $0.5 million tax benefit and a net
gain on the sale of $1.7 million, net of $0.5 million tax expense.
Revenues for discontinued operations were $12.1 million in fiscal 1995 and
$14.3 million in fiscal 1994. Net assets of the discontinued operations at
May 31, 1995 consist primarily of current assets amounting to $0.7 million.
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are defendants in various legal actions
arising in the course of business activities. In the opinion of
management, these actions will not result in a material adverse effect on
the Company's consolidated operations or financial position.
Item 6. Exhibits and Reports on Form 8-K Page
(a) Exhibit 10 - Sales Agreement dated April 28, 1995 between
Central Farm of America, Inc. and DEKALB
Genetics Corporation 13-58
Exhibit 11 - Computation of Net Earnings per Common and
Common Equivalent Share 59-60
(b) Reports on Form 8-K - In a report filed on Form 8-K dated April 18, 1995,
the Company reported the dismissal of its external
auditors.
- In a report dated April 28, 1995, the Company
reported the sale of its poultry business.
- In a report dated June 9, 1995, DEKALB reported the
engagement of new external auditors.
SIGNATURE
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.
DEKALB Genetics Corporation
Date: July 12, 1995 Thomas R. Rauman
(Signature)
Thomas R. Rauman
Vice President-Finance,
Chief Financial Officer