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 the quarterly period ended May 31, 1997 or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------------------
Commission File Number: 000-21788
Exact name of registrant as specified in its charter:
DELTA AND PINE LAND COMPANY
State of Incorporation: Delaware
I.R.S. Employer Identification Number: 62-1040440
Address of Principal Executive Offices (including zip code)
One Cotton Row, Scott, Mississippi 38772
Registrant's telephone number, including area code:
(601) 742-4000
Indicate by check mark whether 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 ( )
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.10 Par Value--28,169,371 shares outstanding as of July 8, 1997.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -- May 31, 1996,
August 31, 1996, and May 31, 1997 3
Consolidated Statements of Income-- Three Months
Ended May 31, 1996 and May 31, 1997 4
Consolidated Statements of Income -- Nine Months
Ended May 31, 1996 and May 31, 1997 5
Consolidated Statements of Cash Flows -- Nine Months
Ended May 31, 1996 and May 31, 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
May 31, August31, May 31,
1996 1996 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents 5,992 $ 560 $ 869
Receivables 81,129 66,650 127,495
Inventories 36,403 41,460 41,242
Prepaid expenses 1,215 1,363 1,230
Deferred income taxes 1,525 1,907 1,907
-------------- ---------------- ---------------
Total current assets 126,264 111,940 172,743
------------- -------------- -------------
PROPERTY, PLANT and EQUIPMENT, net 50,428 55,058 62,351
NOTES RECEIVABLE FROM EMPLOYEES 421 629 317
EXCESS OF COST OVER NET ASSETS OF
BUSINESS ACQUIRED, net 4,988 4,950 4,611
INTANGIBLE ASSETS, net 3,260 3,214 3,150
OTHER ASSETS 4,561 3,869 4,828
-------------- -------------- --------------
$ 189,922 $ 179,660 $ 248,000
============== ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 19,437 $ 2,595 $ 263
Accounts payable 9,186 14,954 9,638
Accrued expenses 58,098 55,079 93,709
Income taxes payable 10,882 3,338 17,345
--------------- --------------- ---------------
Total current liabilities 97,603 75,966 120,955
--------------- -------------- --------------
LONG-TERM DEBT 16,677 31,465 32,430
DEFERRED INCOME TAXES 2,726 2,888 2,888
COMMITMENTS AND CONTINGENCIES (Note 5)
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;
322,383 shares authorized; no shares
issued or outstanding - - -
Series M Convertible Non-Voting
Preferred, par value $0.10 per share;
600,000 shares authorized; 600,000 shares
issued and outstanding 60 60 60
Common stock, par value $0.10 per share;
50,000,000 shares authorized;
27,943,241; 28,172,840
and 28,212,674 shares issued 2,794 2,817 2,821
Capital in excess of par value 18,825 21,705 22,337
Retained earnings 51,027 45,004 68,352
Cumulative foreign currency translation
adjustments 210 (245) (368)
Treasury stock, at cost, 62,100 shares in 1997 - - (1,475)
---------- ---------- ---------------
Total stockholders' equity 72,916 69,341 91,727
--------------- ------------- --------------
$ 189,922 $ 179,660 $ 248,000
============= ============ ============
The accompanying notes are an integral part of these balance sheets.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
(in thousands, except per share amounts)
(Unaudited)
May 31, May 31,
1996 1997
NET SALES AND LICENSING FEES $ 82,650 $ 116,425
COST OF SALES 52,915 73,704
-------------- ---------------
GROSS PROFIT 29,735 42,721
-------------- ---------------
OPERATING EXPENSES:
Research and development 3,235 3,897
Selling 2,567 3,256
General and administrative 2,092 2,500
Unusual charges related to acquisitions 418 433
---------------- -----------------
8,312 10,086
--------------- ----------------
OPERATING INCOME 21,423 32,635
INTEREST EXPENSE, net of capitalized interest of $103 and $133 (663) (861)
OTHER 105 81
-------------- -----------------
INCOME BEFORE INCOME TAXES 20,865 31,855
PROVISION FOR INCOME TAXES 7,499 11,293
------------- ---------------
NET INCOME 13,366 20,562
DIVIDENDS ON PREFERRED STOCK (13) (18)
----------------- -------------------
NET INCOME APPLICABLE TO COMMON SHARES $ 13,353 $ 20,544
============= ================
PRIMARY EARNINGS PER SHARE:
NET INCOME PER SHARE $ 0.46 $ 0.71
=============== =================
NUMBER OF SHARES USED IN PRIMARY EARNINGS
PER SHARE CALCULATIONS 29,328 29,111
=============== ===============
FULLY DILUTED EARNINGS PER SHARE:
NET INCOME PER SHARE $ 0.44 $ 0.68
=============== ================
NUMBER OF SHARES USED IN FULLY DILUTED EARNINGS
PER SHARE CALCULATIONS 30,061 29,992
=============== ===============
DIVIDENDS PER SHARE $ 0.0225 $ 0.03
============= ================
The accompanying notes are an integral part of these statements.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED
(in thousands, except per share amounts)
(Unaudited)
May 31, May 31,
1996 1997
NET SALES AND LICENSING FEES $ 151,380 $ 189,167
COST OF SALES 96,479 119,933
-------------- -------------
GROSS PROFIT 54,901 69,234
-------------- -------------
OPERATING EXPENSES:
Research and development 6,748 10,116
Selling 7,165 9,143
General and administrative 7,022 7,839
Unusual charges related to acquisitions 1,063 940
--------------- ---------------
21,998 28,038
------------- -------------
OPERATING INCOME 32,903 41,196
INTEREST EXPENSE, net of capitalized interest of $401 and $421 (1,601) (2,083)
OTHER 270 467
--------------- --------------
INCOME BEFORE INCOME TAXES 31,572 39,580
PROVISION FOR INCOME TAXES 11,530 14,073
-------------- --------------
NET INCOME 20,042 25,507
DIVIDENDS ON PREFERRED STOCK (25) (45)
----------------- ----------------
NET INCOME APPLICABLE TO COMMON SHARES $ 20,017 $ 25,462
============== ============
PRIMARY EARNINGS PER SHARE:
NET INCOME PER SHARE $ 0.69 $ 0.87
============== ==============
NUMBER OF SHARES USED IN PRIMARY EARNINGS
PER SHARE CALCULATIONS 29,032 29,129
============== ==============
FULLY DILUTED EARNINGS PER SHARE:
NET INCOME PER SHARE $ 0.69 $ 0.85
=============== ==============
NUMBER OF SHARES USED IN FULLY DILUTED EARNINGS
PER SHARE CALCULATIONS 29,208 29,851
============== ==============
DIVIDENDS PER SHARE $ 0.06 $ 0.075
============== ==============
The accompanying notes are an integral part of these statements.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
(in thousands)
(Unaudited)
May 31, May 31,
1996 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,042 $ 25,507
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 2,770 3,691
Changes in current assets and liabilities:
Receivables (75,878) (60,845)
Inventories (15,460) 218
Prepaid expenses (56) 133
Accounts payable 3,044 (5,316)
Accrued expenses 45,852 38,630
Income taxes payable 4,725 14,007
Decrease (increase) in intangible and other assets 614 (705)
Other, net (82) 312
----------------- ----------------
Net cash (used in) provided by operating activities (14,429) 15,632
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Acquisition of business (1,035) -
Purchases of property and equipment (9,783) (10,958)
-------------- ---------------
Net cash used in investing activities (10,818) (10,958)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of short-term debt (21,698) (29,462)
Payments of long-term debt - (19,070)
Dividends paid (1,684) (2,159)
Proceeds from long-term debt 3,863 27,130
Proceeds from short-term debt 40,485 20,035
Purchase of common stock - (1,475)
Proceeds from exercise of stock options and tax benefit
of stock option exercises 2,081 636
-------------- -----------------
Net cash provided by (used in) financing activities 23,047 (4,365)
------------- ---------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (2,200) 309
CASH AND CASH EQUIVALENTS, as of August 31 8,192 560
-------------- ---------------
CASH AND CASH EQUIVALENTS, as of May 31 $ 5,992 $ 869
============ ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the nine months for:
Interest, net of capitalized interest $ 1,600 $ 2,200
Income taxes $ 6,400 $ 2,300
The accompanying notes are an integral part of these statements.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except percentages and share amounts)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for the fair presentation of the consolidated financial statements
have been included. Due to the seasonal nature of Delta and Pine Land Company
and subsidiaries' (the "Company") business, the results of operations for the
three or nine month periods ended May 31, 1996 and 1997, are not necessarily
indicative of the results to be expected for the full year. For further
information reference should be made to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report to Stockholders on
Form 10-K for the fiscal year ended August 31, 1996.
In February 1997, the Board of Directors authorized a 4 for 3 stock split for
common and preferred shares outstanding effected in the form of a dividend, with
no change in par value per share, distributed on April 11, 1997 to stockholders
of record on March 31, 1997. The 4 for 3 split has been reflected in the
accompanying financial statements.
Certain 1996 balances have been reclassified to conform to the 1997
presentation.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of",
was issued effective for fiscal years beginning after December 15, 1995. The
Company currently has no impaired assets and, therefore, was not affected by
this statement.
SFAS No. 123, "Accounting for Stock-Based Compensation", was issued effective
for fiscal years beginning after December 15, 1995. Under this standard,
companies may continue to use the intrinsic value methodology prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", or may apply a fair value methodology used in SFAS No. 123. The
Company is continuing to account for stock-based compensation using the
intrinsic method; therefore, SFAS No. 123 will not have an impact on the
Company's reported results of operations or financial position. The Company will
comply with the disclosure requirements of SFAS No. 123 at its fiscal 1997 year
end.
SFAS No. 128, "Earnings per Share", was issued effective for both interim and
annual periods ending after December 15, 1997. The Company is currently
evaluating the impact of this SFAS on its financial statements. The Company
anticipates showing the pro forma effects of this statement in the footnotes to
the financial statements as of and for the year ended August 31, 1997 to be
included in its Form 10-K. The Company is required to adopt this statement in
the first fiscal quarter of 1998 ending on November 30, 1997.
3. INVENTORIES
Inventories consisted of the following (in thousands):
May 31, August 31, May 31,
1996 1996 1997
Finished goods $ 22,295 $ 28,634 $ 18,410
Raw materials 15,418 13,367 21,888
Growing crops 293 579 1,887
Supplies and other 955 814 991
--------------- --------------------------------
38,961 43,394 43,176
Less reserves (2,558) (1,934) (1,934)
--------------- -------------- ---------------
$ 36,403 $ 41,460 $ 41,242
============= ============ =============
Substantially all finished goods and raw material inventory is valued at the
lower of average cost or market. Growing crops are recorded at cost.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following (in thousands):
May 31, August 31, May 31,
1996 1996 1997
Land and improvements $ 3,687 $ 3,881 $ 4,156
Buildings and improvements 22,081 24,877 29,305
Machinery and equipment 28,866 31,409 35,458
Germplasm, breeder and foundation seed 9,500 9,500 9,500
Construction in progress 5,485 5,840 7,693
--------------- --------------- ---------------
69,619 75,507 86,112
Less accumulated depreciation (19,191) (20,449) (23,761)
--------------- -------------- ---------------
$ 50,428 $ 55,058 $ 62,351
5. CONTINGENCIES
The Company, Monsanto Company ("Monsanto") and other third parties were named as
defendants in two lawsuits filed in Texas in August, 1996. A third lawsuit was
filed in October 1996 in Louisiana. Two of these suits request that they be
certified as a class action. The plaintiffs allege, among other things, that
D&PL's NuCOTN varieties, which contain Monsanto's Bollgard(TM) gene, did not
perform as these farmers had anticipated and, in particular, did not fully
protect their cotton crops from certain lepidopteran insects. Pursuant to the
terms of the Bollgard agreement between D&PL and Monsanto, Monsanto has assumed
responsibility for the defense of these claims. Some of these claims for failure
of the Bollgard gene are subject to a duty of defense by Monsanto and prorata
indemnification under the agreement. Under the applicable indemnity provisions
of the agreement, defense costs and liability to the plaintiffs on any failure
of the technology would be apportioned 71% to Monsanto and 29% to D&PL. Some of
the claims in this litigation concern failure of express warranties relating to
insect resistance and those claims may not be within the scope of D&PL's
indemnity obligation to Monsanto. On the other hand, some of the claims made in
the litigation concern the quality of seed and seed coat treatments, or other
varietal aspects of NuCOTN, not involving failure of performance of the Bollgard
gene or express representations with respect thereto and, therefore, may not be
within the scope of Monsanto's indemnity obligation to D&PL. The Company would
be required to bear any damages relating to product defects, if any, which do
not involve the failure of the Bollgard gene to provide insect resistance. D&PL
intends to cooperate with Monsanto in its anticipated vigorous defense of these
claims. D&PL believes that these claims will be resolved without any material
impact on the Company's financial statements.
In October 1996, Mycogen Plant Science, Inc. ("Mycogen") and Agrigenetics, Inc.
filed a lawsuit naming D&PL, Monsanto and DeKalb Genetics as defendants alleging
that two of Mycogen's recently issued patents have been infringed by the
defendants by selling seed that contains the Bollgard gene. Pursuant to the
terms of the Agreement, Monsanto is required to defend D&PL against patent
infringement claims and indemnify D&PL against damages from any patent
infringement claims. D&PL believes that the resolution of the matter will not
have a material impact on the Company or its financial statements.
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 $900,000 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 or its
financial statements. The Company continues to offer seed for sale in Guatemala.
The Company is involved in various other claims arising in the normal course of
business. Management believes such matters will be resolved without any material
effect on the Company's financial position or its results of operations.
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. The CID states that the USDOJ is
investigating whether this transaction may have violated the provisions of
Section 7 of the Clayton Act, 15 USC (subsection) 18. D&PL is currently
engaged in
responding to the CID and is committed to full cooperation with the USDOJ. At
the present time, the ultimate outcome of the investigation cannot be predicted.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
D&PL 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 and in 1988 hybrid sorghum seed to its product line. In 1988,
D&PL also commenced distributing corn hybrids acquired from others. In 1995, the
Company sold its corn and sorghum business to Mycogen. D&PL and Mycogen entered
into a joint marketing agreement whereby both companies will sell D&PL's
remaining corn and sorghum hybrids through 1997. The two parties will exchange
certain operating facilities in the future upon the satisfactory completion of
environmental site assessments and remediation procedures as necessary.
In 1988, as a component of its long-term growth strategy, the Company began to
include in its focus the international marketing of its products, primarily
cotton seed. The Company has strengthened and expanded its international staff
in order to support its expanding joint venture activities. 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(TM) technology would be effective and help farmers
in those countries to control certain lepidopteran cotton pests.
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. To date, a majority of the
Company's international sales have resulted from exports from the U.S. of the
Company's products rather than direct in-country operations.
D&M International, LLC, is a venture formed in 1995 through which D&PL and
Monsanto plan to introduce in combination D&PL's acid delinting technology and
Monsanto's Bollgard gene technology. D&PL is the managing member of D&M
International. In November 1996, D&M International's subsidiary, D&PL China Pte
Ltd. concluded negotiations for a joint venture with parties in Hebei Province,
one of the major cotton producing regions in the People's Republic of China. The
joint venture will be controlled by D&PL China Pte Ltd. In June 1997,
construction began on a new cotton seed conditioning and storage facility in
Hebei Province, China, under terms of the joint venture agreement. The joint
venture expects the new facility to be completed by mid-November 1997. The joint
venture anticipates producing in 1997 seed sufficient to plant up to 500,000
acres of Bollgard cotton in Hebei Province in 1998 assuming a normal growing and
harvesting season this year. The Company is currently negotiating with potential
venture partners in Zimbabwe, Brazil and Argentina and is in exploratory
discussions with potential partners in India and Uzbekistan. Prior joint venture
negotiations in Turkey and Egypt reached an impasse and have ceased.
In 1996, D&PL completed the construction of two smaller, yet cost efficient
delinting plants, one each in South Africa and Argentina which initially will be
used to provide winter nursery services to northern hemisphere operations in
order to accelerate the bulk up and ultimately the introduction of new products
by taking advantage of the southern hemisphere growing season. In addition,
these branches will evaluate and develop the cottonseed business in their
respective areas.
In addition, the Company began the reorganization of its business among its key
operating units including Deltapine, Paymaster (which includes the stripper
varieties acquired in 1994 and the Hartz varieties acquired in 1996), Sure Grow
and International. Effective September 1, 1996, each unit is responsible for its
own Sales, Marketing, Research and Field Agronomy while Operations, Quality
Assurance, Administration and Finance, Technical Services and Transgenic Product
Development will provide services to all operating units. In December 1995, in
response to shareholder interest and to increase the Company's visibility and
attractiveness to a more diverse population of investors, D&PL moved from NASDAQ
and listed its shares on the New York Stock Exchange.
In 1996, D&PL assembled its own fully staffed Sales and Marketing and Technical
Services teams for Deltapine Australia. In the first and second quarters, the
Company sold limited quantities of seed containing Monsanto's Bt gene (marketed
as Ingard(TM)) in Australia. Operating results in Australia remain at
unacceptable levels, and the organizational changes will add further costs to
that operation in the near term. Deltapine Australia cotton varieties currently
under development, along with two new varieties recently introduced, must
perform well to capture market share to improve operating results.
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 international operations of D&PL include the
testing and quarantine and other restrictions relating to the import and export
of plants and seed products and the availability 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.
Acquisitions
In May, 1996, D&PL acquired Ellis Brothers Seed, Inc., Arizona Processing, Inc.
and Mississippi Seed, Inc. ( the "Sure Grow Companies") in exchange for stock
valued at approximately $70 million on the day of closing. D&PL exchanged 2.1
million shares of its common stock (after the effect of a 4 for 3 stock split)
for all outstanding shares of the three companies. The merger was accounted for
as a pooling-of-interests. The acquired companies will continue their current
operations marketing upland picker cottonseed varieties under their existing
brand, Sure Grow. The Sure Grow breeding program will have immediate access to
Monsanto's Bollgard and Roundup Ready(R) gene technologies.
In February, 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 600,000
shares (after the effect of stock splits) of the Company's Series M Convertible
Non-Voting Preferred Stock.
Since the 1940's, the Paymaster(R) and Lankart(R) upland stripper cotton
seed
varieties have been developed for and marketed primarily in the High Plains. In
1994, D&PL acquired the Paymaster and Lankart cotton planting seed business
("Paymaster"), for approximately $14.0 million. 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 small portion of that seed is actually sold by
Paymaster. Farmer-saved seed and seed from other sources accounted for up to 85%
of the seed needed to plant the acreage in this market area. Through 1996 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, unconditioned seed is supplied by Paymaster to
contract delinters who delint, condition and bag the seed for a fee. The seed is
then sold by Paymaster through its 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 (fiber-length) staple
cotton varieties. D&PL also entered into a research agreement with Supima's
university collaborator that allows D&PL the right of first refusal for any Pima
varieties developed under this program which D&PL partially funds. Pima seed is
produced, conditioned and marketed directly by D&PL.
Biotechnology
The collaborative biotechnology licensing agreement executed with Monsanto in
1992 and subsequently revised in 1993 and 1996, provides for the
commercialization of Monsanto's Bollgard ("Bacillus thuringiensis" or "Bt")
technology in D&PL's varieties. Bt is a bacterium found naturally in soil that
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
causes the death of 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, exceeding the cost of seed. 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 commenced
commercial sales of two NuCOTN varieties, which contained the Bollgard gene, in
accordance with the terms of the D&PL/Monsanto Bollgard Gene License and Seed
Services Agreement (the "Agreement"). This initial EPA registration expires on
January 1, 2001, 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.
D&PL is also developing transgenic cotton and transgenic soybean varieties that
are tolerant to Roundup(R), a herbicide sold by Monsanto. In 1996, such Roundup
Ready plants were approved by the Food and Drug Administration, the USDA, and
the EPA. In February, 1996, the Company and Monsanto executed the Roundup Ready
Gene License and Seed Services Agreement which provides for the
commercialization of Roundup Ready cottonseed. D&PL and Monsanto are currently
negotiating a commercialization agreement for Roundup Ready soybean seed.
Since 1987, D&PL has conducted research using genes provided by DuPont to
develop cotton and soybean plants that are tolerant to certain DuPont ALS7
herbicides. Such plants would enable farmers to apply these herbicides for weed
control without significantly affecting the agronomics of the cotton or 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. In
February, 1996, DuPont and D&PL mutually terminated the cotton commercialization
agreement signed in 1994. The termination of this agreement did not materially
impact the Company's current results of operations.
Commercial Seed
Seed of all commercial plant species is either varietal or hybrid. D&PL's cotton
and soybean seed are varietal and its sorghum and corn seed are hybrids.
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 ("PVPA") of 1970, as amended in 1994, in essence prohibits, with limited
exceptions, purchasers of protected varieties from selling seed harvested from
these varieties. Some foreign countries provide similar protection.
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 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.
In connection with its seed operations, the Company also farms approximately
2,000 acres, primarily 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 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 is 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 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 pattern 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 estimated to be planted with such seed when the seed is
shipped. Domestically, the Company promotes its cottonseed directly to farmers
and sells cottonseed through distributors and dealers. All of the Company's
domestic seed products 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 of other crops 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 and actual acreage planted with seed containing the
Bollgard and Roundup Ready genes 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. International export seed revenues are
recognized upon the date seed is shipped or the date letters of credit are
cleared, whichever is later. Generally, international export sales are not
subject to return.
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 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 the following:
Domestic demand for D&PL's seed will continue to be affected by government
programs 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. The Company's seed products 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.
Further growth in overall profitability will depend on weather conditions,
government policies in all countries where the Company sells products,
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
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
capitalize on these projects may affect future profitability.
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 than domestic
profitability and growth have been in the past.
See also Item 1, Note 5 concerning certain contingencies.
RESULTS OF OPERATIONS
The following sets forth selected operating data of the Company (in thousands):
For the Three Months Ended For the Nine Months Ended
May 31, May 31, May 31, May 31,
1996 1997 1996 1997
------------------------------ -------------- -------
Operating results -
Net sales and licensing fees $ 82,650 $ 116,425 $ 151,380 $ 189,167
Gross profit 29,735 42,721 54,901 69,234
Operating expenses:
Research and development 3,235 3,897 6,748 10,116
Selling 2,567 3,256 7,165 9,143
General and administrative 2,092 2,500 7,022 7,839
Unusual charges related to 418 433 1,063 940
acquisitions
Operating income 21,423 32,635 32,903 41,196
Income before income taxes 20,865 31,855 31,572 39,580
Net income applicable to common shares 13,353 20,544 20,017 25,462
The following sets forth selected balance sheet data of the Company as of the
following periods (in thousands):
May 31, August 31, May 31,
1996 1996 1997
------------------ ------------------ -------------------
Balance sheet summary-
Current assets $ 126,264 $ 111,940 $ 172,743
Current liabilities 97,603 75,966 120,955
Working capital 28,661 35,974 51,788
Property, plant and equipment, net 50,428 55,058 62,351
Total assets 189,922 179,660 248,000
Outstanding borrowings 36,114 34,060 32,693
Stockholders' equity 72,916 69,341 91,727
Three months ended May 31, 1997, compared to three months ended May 31, 1996:
Net sales and licensing fees increased approximately $33.8 million to $116.4
million from $82.6 million. The increase in net sales and licensing fees is the
result of increased unit sales of NuCOTN varieties of cotton seed which contain
the Bollgard gene, the first commercial sale of seed containing the Roundup
Ready gene and increased unit sales of soybean seed, the positive effects of
which were partially offset by lower unit sales of traditional cotton varieties.
Operating expenses increased from $8.3 million in the third fiscal quarter of
1996 to $10.1 million in fiscal 1997. This expected increase is attributable to
higher research and transgenic product development costs related to acquisitions
in 1996, higher sales and marketing expenses related to transgenic seed products
and expenses related to international operations. Operating expenses also
include unusual costs associated with the Company's response to the United
States Department of Justice investigation of the acquisition by D&PL of the
stock of Arizona Processing, Inc., Ellis Brothers Seed, Inc. and Mississippi
Seed, Inc.
Interest expense increased by 28% to $0.9 million from $0.7 million due to
higher average outstanding borrowings partially offset by lower interest rates
during the period.
Nine months ended May 31, 1997, compared to nine months ended May 31, 1996:
Net sales and licensing fees increased approximately $37.8 million to $189.2
million from $151.4 million. The increase in net sales and licensing fees is the
result of increased unit sales of NuCOTN varieties of cotton seed which contain
the Bollgard gene, initial sales of varieties containing the Roundup Ready gene
and increased unit sales of soybean seed, the positive effects of which were
partially offset by lower unit sales of traditional cotton varieties.
Operating expenses increased from $22.0 million in 1996 to $28.0 million in
1997. This expected increase is attributable to increased operating expenses
related to businesses acquired in 1996, sales and marketing expenses related to
transgenic seed products and international operations. Operating expenses also
include unusual costs associated with the Company's response to the United
States Department of Justice investigation of the acquisition by D&PL of the
stock of Arizona Processing, Inc., Ellis Brothers Seed, Inc. and Mississippi
Seed, Inc.
Interest expense increased by 31% to $2.1 million from $1.6 million due to
higher average outstanding borrowings partially offset by lower interest rates
during the period.
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 15 years D&PL has borrowed on a short-term basis to
meet seasonal working capital needs.
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 early in the fourth fiscal quarter. D&PL
also offers distributors, dealers and farmers financial incentives to make early
payments. To the extent D&PL attracts early payments from customers, bank
borrowings under the credit facility are reduced.
In November 1995, the Company and a financial institution entered into a new
loan agreement that replaced the existing facility. The new agreement (as did
the agreement it replaced) provided a base commitment of $15.0 million and a
seasonal commitment of $35.0 million. In March 1996, the bank approved an
additional seasonal facility of $15.0 million. In June 1996, the base commitment
was increased to $30.0 million and the seasonal commitment was reduced to $20.0
million to accommodate the anticipated changes in borrowings related to the
acquisition of Sure Grow. In January 1997, the additional seasonal facility was
increased from $15.0 million to $25.0 million. At the same time, the base
commitment was increased from $30.0 million to $35.0 million and the seasonal
commitment was reduced to $15.0 million. The base commitment is a long-term loan
that may be borrowed upon at any time and is due January 1, 1999. Both the
seasonal commitment and the additional seasonal commitment are working capital
loans that may be drawn upon from September 1 through June 30 of each fiscal
year and expire January 1, 1999. Commencing in January 1997 and in each January
thereafter, the facilities are renewable for another three year term. In
February 1997, the bank provided an additional $10.0 million of seasonal
availability with an expiration date of May 31, 1997. In April 1997, the base
commitment was increased from $35.0 million to $50.0 million. Each commitment
offers variable and fixed interest rate options and requires the Company to pay
facility and/or commitment fees and to comply with certain financial covenants.
Current assets and liabilities, including bank borrowings, fluctuate throughout
the year due to the seasonal nature of the agriculture industry. Inventory
levels depend, in part, on timing of bulk seed receipts, conditioning and
shipping and the related cost of bulk seed and conditioning. Inventory levels
have increased as compared with the first quarter of fiscal 1996 due to the
introduction of the transgenic seed products. Specifically, D&PL, during the
1995 growing season, contracted with its growers to produce enough
non-transgenic seed to meet sales projections for the 1996 season in the event
that the EPA did not approve the sales of seed containing the Bollgard gene
technology. The EPA ultimately approved such technology in October, 1995, which
was beyond the date that D&PL could reduce its purchase contracts for
non-transgenic seed. In addition, the reduction in planted cotton acres from
16.7 million in fiscal 1995 to 14.0 million in fiscal 1996 further contributed
to increased inventory levels since D&PL sold fewer than expected units in the
1996 season.
Capital expenditures for the third quarter of fiscal 1997 were approximately
$3.1 million as the Company continues to facilitate growth in its traditional
and transgenic seed products by modifying and upgrading certain of its
facilities. This investment strategy included the commencement in 1995 of a
special $13.0 million upgrade of the Company's bulk seed stabilization, storage,
handling and processing facilities at three of its cottonseed plants. In
addition, a cottonseed processing plant acquired in the Paymaster acquisition
has been technologically upgraded. Projects for fiscal 1997 include a new fully
integrated computer system, a new international and administrative office
building and further expansion of facilities in Australia and South Africa. Such
expenditures will be funded from cash on hand and borrowings under the Company=s
credit facility. Management believes that capital expenditures will be
approximately $13.0 to $15.0 million in fiscal 1997, excluding expected capital
expenditures for foreign joint ventures which will be funded by cash from
operations, borrowings or investments from joint venture partners, as necessary.
In February 1997, the Board of Directors authorized a 4 for 3 stock split for
common and preferred shares outstanding effected in the form of a dividend, with
no change in par value per share, distributed on April 11, 1997 to stockholders
of record on March 31, 1997. The 4 for 3 split has been reflected in the
accompanying financial statements. A quarterly dividend rate of $0.03 per share
was maintained after the split, which represents a 33% increase in the dividend
rate.
In the third quarter of fiscal 1997, the Board of Directors authorized a
quarterly dividend of $0.03 per share, paid June 13, 1997 to the stockholders of
record on May 31, 1997. It is anticipated that quarterly dividends of $0.03 per
share will continue to be paid in the future, although the Board of Directors
reviews this policy quarterly. In April 1997, the Board of Directors authorized
the repurchase of up to 10% of the common stock outstanding. At May 31, 1997,
the number of shares purchased under this authorization was 62,100 for an
aggregate purchase price of $1,475,000.
Management believes cash provided from operations, early payments from
customers, and borrowings under the loan agreements should be sufficient to meet
the Company's fiscal 1997 working capital needs.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
11.01 Computation of Earnings Per Share
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended May 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DELTA AND PINE LAND COMPANY
Date: July 15, 1997 /s/ Roger D. Malkin
-------------------
Roger D. Malkin, Chairman and
Chief Executive Officer
Date: July 15, 1997 /s/ W. Thomas Jagodinski
------------------------
W. Thomas Jagodinski,
Vice President - Finance and Treasurer
EXHIBIT 11.01
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS ENDED
May 31, May 31,
1996 1997
---------------- ----------------
PRIMARY EARNINGS PER SHARE:
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING AT THE BEGINNING OF THE
PERIOD 27,819 28,194
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK ISSUED DURING THE
PERIOD 73 8
WEIGHTED AVERAGE NUMBER OF SHARES
OF TREASURY STOCK PURCHASED
DURING THE PERIOD - (13)
WEIGHTED AVERAGE NUMBER OF SHARES
ATTRIBUTED TO OPTIONS 1,436 922
---------------- ----------------
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING
DURING THE PERIOD FOR COMPUTATION
OF PRIMARY EARNINGS PER SHARE 29,328 29,111
================ ================
FULLY DILUTED EARNINGS PER SHARE:
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING AT THE BEGINNING OF THE 27,819 28,194
PERIOD
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK ISSUED DURING THE
PERIOD 73 8
WEIGHTED AVERAGE NUMBER OF SHARES
OF TREASURY STOCK PURCHASED
DURING THE PERIOD - (13)
WEIGHTED AVERAGE NUMBER OF SHARES
ATTRIBUTED TO CONVERTIBLE
PREFERRED STOCK 600 600
WEIGHTED AVERAGE NUMBER OF SHARES
ATTRIBUTED TO OPTIONS 1,569 1,203
---------------- ----------------
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING
DURING THE PERIOD FOR COMPUTATION
OF FULLY DILUTED EARNINGS PER SHARE 30,061 29,992
================ ================
NET INCOME APPLICABLE TO COMMON SHARES $ 13,353 $ 20,544
================ ================
NET INCOME PER COMMON SHARE:
PRIMARY $ 0.46 $ 0.71
================ ================
FULLY DILUTED $ 0.44 $ 0.68
================ ================
EXHIBIT 11.01
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE NINE MONTHS ENDED
May 31, May 31,
1996 1997
---------------- ----------------
PRIMARY EARNINGS PER SHARE:
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING AT THE BEGINNING OF THE
PERIOD 27,808 28,173
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK ISSUED DURING THE
PERIOD 33 17
WEIGHTED AVERAGE NUMBER OF SHARES
OF TREASURY STOCK PURCHASED
DURING THE PERIOD - (4)
WEIGHTED AVERAGE NUMBER OF SHARES
ATTRIBUTED TO OPTIONS 1,191 943
---------------- ----------------
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING
DURING THE PERIOD FOR COMPUTATION
OF PRIMARY EARNINGS PER SHARE 29,032 29,129
================ ================
FULLY DILUTED EARNINGS PER SHARE:
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING AT THE BEGINNING OF THE 27,808 28,173
PERIOD
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK ISSUED DURING THE
PERIOD 33 17
WEIGHTED AVERAGE NUMBER OF SHARES
OF TREASURY STOCK PURCHASED
DURING THE PERIOD - (4)
WEIGHTED AVERAGE NUMBER OF SHARES
ATTRIBUTED TO CONVERTIBLE
PREFERRED STOCK 271 600
WEIGHTED AVERAGE NUMBER OF SHARES
ATTRIBUTED TO OPTIONS 1,096 1,065
---------------- ----------------
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING
DURING THE PERIOD FOR COMPUTATION
OF FULLY DILUTED EARNINGS PER SHARE 29,208 29,851
================ ================
NET INCOME APPLICABLE TO COMMON SHARES $ 20,017 $ 25,462
================ ================
NET INCOME PER COMMON SHARE:
PRIMARY $ 0.69 $ 0.87
================ ================
FULLY DILUTED $ 0.69 $ 0.85
================ ================