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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended August 31, 1999
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 000-21788
DELTA AND PINE LAND COMPANY
(Exact name of registrant as specified in its charter)
Delaware 62-1040440
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
One Cotton Row, Scott, Mississippi 38772
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (662) 742-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
Common Stock, $0.10 par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of Common Stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on October 31,
1999 as reported on the New York Stock Exchange, was approximately $651,438,000.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of October 31, 1999, Registrant had outstanding 38,685,482 shares of Common
Stock.
PART I
ITEM 1. BUSINESS
Domestic
On May 8, 1998, Delta and Pine Land Company ("DPLC") entered into a Merger
Agreement with Monsanto Company ("Monsanto"), pursuant to which DPLC would be
merged with and into Monsanto. This agreement has been approved by DPLC's
stockholders but is subject to the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. Under terms of the
agreement, DPLC's stockholders will be entitled to receive 0.8625 shares of
Monsanto's common stock in exchange for each share of DPLC stock they hold. At a
Special Shareholders Meeting held on November 30, 1998, the shareholders
approved the Merger Agreement and Plan of Merger. The Merger Agreement
originally had an expiration date of June 30, 1999. However, DPLC could extend
the period of time in which to complete the merger until December 31, 1999 or
under certain circumstances to June 30, 2000. On May 21, 1999, DPLC and Monsanto
agreed to extend the time for completing the merger from June 30, 1999 until
December 31, 1999, with an option for DPLC to extend this deadline to June 30,
2000.
Delta and Pine Land Company, a Delaware corporation, and subsidiaries ("D&PL" or
the "Company") 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 to its product line. In 1996, D&PL commenced
commercial sales in the United States of cotton planting seed containing
Bollgard(R) gene technology licensed from Monsanto which expresses a protein
toxic to certain lepidopteran cotton pests. Since 1997, D&PL has marketed in the
U.S. cotton planting seed that contains a gene that provides tolerance to
glyphosate-based herbicides ("Roundup Ready(R) Cotton"). In 1997, D&PL commenced
commercial sales in the U.S. of soybean planting seed that contains a gene that
provides tolerance to glyphosate-based herbicides ("Roundup Ready Soybeans").
International
During the 1980's, as a component of its long-term growth strategy, the Company
began to market its products, primarily cottonseed, internationally. Over a
period of years, the Company has strengthened and expanded its international
staff in order to support its expanding international business, primarily
through joint ventures. 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
gene technology and Roundup Ready gene technology licensed from Monsanto is
effective and could bring value to farmers.
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. Prior to 1999, a majority of the
Company's international sales resulted from exports from the U.S. of the
Company's products rather than direct in-country operations. In 1999, direct
in-country operations through joint ventures or subsidiaries (primarily,
Australia, China and South Africa) comprised over one-half of total
international sales which represent approximately 10% of consolidated sales.
Joint Ventures
D&M International, LLC, is a venture formed in 1995 through which D&PL (the
managing member) and Monsanto plan to introduce, in combination, cotton planting
seed in international markets combining D&PL's acid delinting technology and
elite germplasm and Monsanto's Bollgard and Roundup Ready gene technologies. In
November 1995, D&M International, LLC formed a subsidiary, D&PL China Pte Ltd.
("D&PL China"). In November 1996, D&PL China formed with parties in Hebei
Province, one of the major cotton producing regions in the People's Republic of
China, Hebei Ji Dai Cottonseed Technology Company Ltd. ("Ji Dai"), a joint
venture controlled by D&PL China. In June 1997, Ji Dai commenced construction of
a cottonseed conditioning and storage facility in Shijiazhuang, Hebei Province,
China, under terms of the joint venture agreement. The new facility was
completed in December 1997 and seed processing and sales commenced in 1998.
In December 1997, D&M International, LLC, formed a joint venture with Ciagro
S.R.L. ("Ciagro"), a distributor of agricultural inputs in the Argentine cotton
region, for the production and sale of genetically improved cottonseed. CDM
Mandiyu S.R.L., is owned 60% by D&M International, LLC, and 40% by Ciagro. The
cotton region, primarily comprised of the Provinces of Chaco, Santiago del
Estero, Salta and Jujuy, presently has 1.8 million acres of cotton requiring
15,000 tons of cotton planting seed per year. CDM Mandiyu S.R.L. has been
licensed to sell D&PL cotton varieties containing Monsanto's Bollgard gene
technology. Sales of such varieties commenced in 1999. Future plans include the
production and sale of Roundup Ready cottonseed varieties pending government
approval.
In July 1998, D&PL China and the Anhui Provincial Seed Corporation formed a
joint venture, Anhui An Dai Cotton Seed Technology Company, Ltd. ("An Dai")
which is located in Hefei City, Anhui Province, China. Under the terms of the
joint venture agreement, the newly formed entity will produce, condition and
sell acid delinted D&PL varieties of cottonseed which contain Monsanto's
Bollgard gene. In the fall of 1998, An Dai harvested sufficient seed from seed
plots in Anhui to plant up to 250,000 acres. The joint venture did not receive
authority to operate from the Chinese government until after the 1999 selling
season was completed. Therefore, commercial sales are expected to commence in
early 2000.
In November 1998, D&M International LLC and Maeda Administracao e Participacoes
Ltda, an affiliate of Agropem - Agro Pecuria Maeda S.A., formed a joint venture
in Minas Gerais, Brazil. The new company, MDM Maeda Deltapine Monsanto Algodao
Ltda., will produce, condition and sell acid-delinted D&PL varieties of cotton
planting seed. The new company produced and delinted enough cottonseed of
conventional varieties in 1999 to plant up to 900,000 acres. The newly formed
company will introduce transgenic cottonseed varieties, both Bollgard and
Roundup Ready, to the Brazilian market as soon government approvals are
obtained.
Subsidiaries
The Company's delinting plants in Groblersdal, South Africa and Catamarca,
Argentina process foundation seed grown in these countries. The use of Southern
Hemisphere winter nurseries and seed production programs such as these can
accelerate the introduction of new varieties because D&PL can raise at least two
crops per year by taking advantage of the Southern Hemisphere growing season.
The Company maintains a winter nursery in Costa Rica and is currently
constructing a delinting plant there to process foundation seed for export to
the United States. Multiple winter nursery locations are used to manage seed
production risks.
Deltapine Australia Pte. Ltd., a wholly owned Australian subsidiary of DPLC,
conducts breeding, production, conditioning and marketing of cotton planting
seed in Australia. Certain varieties developed in Australia are well adapted to
other Southern Hemisphere cotton producing countries and Australian developed
varieties are exported to these areas. The Company sells seed of both
conventional and transgenic varieties in Australia. The Company, through its
Australian operations, is identifying smaller potential export markets for the
Company's products throughout Southeast Asia. The adaptability of the Company's
germplasm must be evaluated in the target markets before such sales can be made.
The recent instability of the economies in some of the countries in this region
will make successful market development difficult.
Employees
As of October 31, 1999, the Company employed a total of 555 full time employees
worldwide. Due to the nature of the business, the Company utilizes seasonal
employees in its delinting plants and its research and foundation seed programs.
The maximum number of seasonal employees approximates 300 and typically occurs
in October and November of each year. The Company considers its employee
relations to be good.
Acquisitions
In 1996, D&PL acquired Ellis Brothers Seed, Inc., Arizona Processing, Inc. and
Mississippi Seed, Inc., which own the outstanding common stock of Sure Grow
Seed, Inc., (the "Sure Grow Companies") in exchange for stock valued at
approximately $70 million on the day of closing. D&PL exchanged 2.8 million
shares of its common stock (after all stock splits) for all outstanding shares
of the three companies. The merger was accounted for as a pooling-of-interests.
The Company continues to market upland picker cottonseed varieties under the
Sure Grow brand. Additionally, the Sure Grow breeding program has full access to
Monsanto's Bollgard and Roundup Ready gene technologies.
In 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 1,066,667 shares (after
all stock splits) of the Company's Series M Convertible Non-Voting Preferred
Stock.
In 1994, D&PL acquired the Paymaster and Lankart cotton planting seed business
("Paymaster"), for approximately $14.0 million. Since the 1940's, the
Paymaster(R) and Lankart(R) upland stripper cottonseed varieties have been
developed for and marketed primarily in the High Plains of Texas and Oklahoma
(the "High Plains"). 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 portion of that seed is actually sold by Paymaster. Farmer-saved
seed accounts for a significant portion of the seed needed to plant the acreage
in this market area. Prior to 1997, 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, the certified seed program was discontinued and the Company, in
addition to producing parent seed, commenced delinting, conditioning and bagging
finished seed. Unconditioned seed is also supplied by D&PL to two contract
processors who delint, condition and bag seed for a fee. This finished seed is
sold by Paymaster to 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 staple (fiber-length)
cotton varieties. D&PL also entered into a research agreement with a third party
to develop Pima varieties that allows D&PL the right of first refusal for any
Pima varieties developed under this program. Pima seed is produced, conditioned
and sold by D&PL to distributors and dealers.
Biotechnology
Collaborative biotechnology licensing agreements, which were executed with
Monsanto in 1992 and subsequently revised in 1993 and 1996, provide for the
commercialization of Monsanto's Bollgard ("Bacillus thuringiensis" or "Bt") gene
technology in D&PL's varieties. The selected Bt is a bacterium found naturally
in soil and 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 is lethal to 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. 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 sold
commercially for the first time two Deltapine varieties, which contained the
Bollgard gene, in accordance with the terms of the Bollgard Gene License and
Seed Services Agreement (the "Bollgard Agreement") between the Company and
Monsanto. 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.
Pursuant to the terms of the Bollgard Agreement, farmers must buy a limited use
sublicense for the technology from D&M Partners, a partnership of D&PL and
Monsanto, in order to purchase seed containing the Bollgard gene technology. The
distributor/dealers who coordinate the farmer licensing process receive a
service payment not to exceed 20% of the technology sublicensing fee. After the
dealers and distributors are compensated, D&M Partners pays Monsanto a royalty
equal to 71% of the net sublicense fee (technology sublicensing fees less
distributor/dealer payments) and D&PL retains 29% for its services. The license
agreement continues until the later of the expiration of all patent rights or
October 2008. D&M Partners contracts the billing and collection activities for
Bollgard and Roundup Ready licensing fees to Monsanto, and therefore may be
affected by Monsanto's year 2000 compliance issues. See "Year 2000 Readiness
Disclosure" and "Outlook" sections contained in Item 1.
Pursuant to the Bollgard Agreement, Monsanto must defend and indemnify D&PL
against claims of patent infringement, including all damages awarded or amounts
paid in settlements. Monsanto must also indemnify D&PL against a) costs of
inventory and b) lost profits on inventory which becomes unsaleable because of
patent infringement claims. Monsanto must defend any claims of failure of
performance of a Bollgard gene. Monsanto and D&PL share the cost of any product
performance claims in proportion to each party's share of the royalty. Indemnity
from Monsanto only covers performance claims involving failure of performance of
the Bollgard gene and not claims arising from other causes.
D&PL has also developed transgenic cotton varieties that are tolerant to
Roundup, a glyphosate-based 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 (the "Roundup Ready Agreement") which
provides for the commercialization of Roundup Ready cottonseed. The Roundup
Ready Agreement grants a license to D&PL and certain of its affiliates the right
in the United States to sell cottonseed of D&PL's varieties that contain
Monsanto's Roundup Ready gene. The Roundup Ready gene makes cotton plants
tolerant to contact with Roundup herbicide. Similar to the Bollgard Agreement,
farmers must execute limited use sublicenses in order to purchase seed
containing the Roundup Ready Gene. The distributors/dealers who coordinate the
farmer licensing process receive a portion of the technology sublicensing fee.
D&PL's portion of the Roundup Ready technology fee varies depending on the
technology fee per acre established by Monsanto. In 1998 and 1999, D&M Partners
paid Monsanto approximately 70% of the Roundup Ready technology fees and D&PL
retained the remaining 30%.
Monsanto must defend and indemnify D&PL against claims of patent infringement,
including all damages awarded or amounts paid in settlements. Monsanto will also
indemnify D&PL against the cost of inventory that becomes unsaleable because of
patent infringement claims, but Monsanto is not required to indemnify D&PL
against lost profits on such unsaleable seed. In contrast with the Bollgard Gene
License where the cost of gene performance claims will be shared in proportion
to the division of sublicense revenue, Monsanto must defend and must bear the
full cost of any claims of failure of performance of the Roundup Ready Gene. In
both agreements, generally, D&PL is responsible for varietal/seed performance
issues, and Monsanto is responsible for failure of the genes.
In 1999, the Company offered for sale 18 cotton planting seed varieties that
contained the Bollgard gene technology, 16 cotton planting seed varieties that
contain the Roundup Ready gene technology, 16 varieties that contain both
technologies, and 54 conventional varieties.
In February 1997, the Company and Monsanto executed the Roundup Ready Soybean
License Agreement (the "Roundup Ready Soybean Agreement") which provides for the
commercialization of Roundup Ready soybean seed and has provisions similar to
the Roundup Ready Agreement for cottonseed.
On July 27, 1999, United States Patent No. 5,929,300 was issued to the United
States of America as represented by the Secretary of Agriculture (USDA) entitled
POLLEN BASED TRANSFORMATION SYSTEM USING SOLID MEDIA. D&PL has an option to
obtain a license for pollen transformation, subject to certain rights reserved
to the USDA. D&PL has notified the USDA of its intention to exercise its rights.
The patent covers transformation of plants.
In March 1998, D&PL was granted United States Patent No. 5,723,765, entitled
CONTROL OF PLANT GENE EXPRESSION. This patent is owned jointly by D&PL and the
United States of America, as represented by the Secretary of Agriculture. The
patent broadly covers plants and seed, both transgenic and conventional, of all
species for a system designed to allow control of progeny seed viability without
harming the crop. The principal application of the technology will be to control
unauthorized planting of seed of proprietary varieties (sometimes called "brown
bagging") by making such practice non-economic since unauthorized saved seed
will not germinate, and would be useless for planting. The patent has the
prospect of opening significant worldwide seed markets to the sale of transgenic
technology in varietal crops in which crop seed currently is saved and used in
subsequent seasons as planting seed. D&PL has stated it intends that licensing
of this technology will be made widely available to other seed companies.
Both patents were developed from a research program conducted pursuant to a
Cooperative Research and Development Agreement between D&PL and the U.S.
Department of Agriculture's Agricultural Research Service in Lubbock, Texas. The
technologies resulted from basic research and will require further development,
which is already underway, in order to be used in commercial seed. The Company
estimates that it will be several years before these technologies could be
available commercially.
Since 1987, D&PL has conducted research using genes provided by DuPont to
develop soybean plants that are tolerant to certain DuPont ALS(R) herbicides.
Such plants enable farmers to apply these herbicides for weed control without
significantly affecting the agronomics of the 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.
The Company has license, research and development, confidentiality and material
transfer agreements with providers of technology that the Company is evaluating
for potential commercial applications and/or introduction. The Company also
contracts with third parties to perform research on the Company's behalf for
enabling and other technologies that the Company believes have potential
commercial applications in varietal crops around the world. The Company's
aggregate research and development costs were $13.7 million, $16.7 million and
$18.7 million during 1997, 1998 and 1999, respectively.
Commercial Seed
Seed of all commercial plant species is either varietal or hybrid. D&PL's cotton
and soybean seed are varietals. 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 of 1970, as amended in 1994, in
essence prohibits, with limited exceptions, purchasers of varieties protected
under the amended Act from selling seed harvested from these varieties without
permission of the plant variety protection certificate owner. Some foreign
countries provide similar legal protection for breeders of crop varieties.
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 prior to seed treatment with chemicals and 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. Additionally,
Federal patent law makes unlawful any unauthorized planting of seed containing
patented genetic technology saved from prior crops.
In connection with its seed operations, the Company farms approximately 2,600
acres in the U.S., primarily for research purposes and 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 parent 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 may be 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 from 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 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 expected to be planted with such seed when the seed is
shipped. Prior to 1998, licensing fees were based on the estimated number of
acres that farmers represented would be planted with the seed purchased. In 1998
and 1999, the licensing fee charged to farmers was based on pre-established
planting rates for seven geographic regions and the estimated number of seed
contained in each bag which may vary by variety, location grown, and other
factors. Revenue is recognized based on the established technology fee per unit
shipped to each geographic region. Domestically, the Company promotes its cotton
and soybean seed directly to farmers and sells its seed through distributors and
dealers. All of the Company's domestic seed products (including Bollgard and
Roundup Ready technologies) 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 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 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 on 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.
Euro Currency Conversion
On January 1, 1999, the euro became the common legal currency of 11 of the 15
member countries of the European Union. On that date, the participating
countries fixed conversion rates between their sovereign currencies ("legacy
currencies") and the euro. On January 4, 1999, the euro began trading on
currency exchanges and became available for non-cash transactions. The legacy
currencies will remain legal tender through December 31, 2001. Beginning January
2, 2002, euro-denominated bills and coins will be introduced, and by July 1,
2002, legacy currencies will no longer be legal tender. To date, D&PL has not
been affected by the euro currency conversion.
Year 2000 Readiness Disclosure
Beginning in 1996, D&PL initiated its Global Year 2000 program to ensure that
its infrastructure and information systems comply with the systems requirements
for the year 2000. The program includes the following phases: identifying
systems that need to be replaced or fixed; assessing the extent of the work
required; prioritizing the work; and successfully completing the associated
action plans. D&PL has essentially completed the first three phases of the
program and is now primarily in the implementation phase. Based on available
knowledge, the majority of systems, including critical business systems, comply
with year 2000 requirements, due in large part to the installation in fiscal
1997 of a third party software system that is year 2000 compliant, at a cost in
excess of $3.0 million. Contingency plans were developed for all critical vendor
products and services. These plans identify critical functions, acceptable delay
times and business resumption strategies. The major task remaining is completion
of the implementation of the Desktop Redeployment Plan. The Company continues to
evaluate the estimated costs associated with the year 2000 compliance based on
actual experience. While the year 2000 efforts involve additional costs, D&PL
believes, based on available information, that it will be able to manage its
in-house year 2000 transition issues without any material adverse effect on its
business operations or financial position. Total cost incurred to date for year
2000 considerations (excluding third party software) approximate $600,000 and
the Company estimates an additional $250,000 will be spent to complete the year
2000 compliance process.
D&PL also has contacted its major suppliers and customers to assess their
preparations for the year 2000. These actions are taken to help mitigate the
possible external impact of year 2000 issues. Even so, presently it is not
feasible to fully assess the potential consequences if service interruptions
occur from suppliers or in such infrastructure areas as utilities,
communications, transportation, banking and government. In addition, it is not
feasible to fully assess the potential consequences if D&PL's customers are not
compliant. D&PL has developed business continuity plans to minimize the impact
of such external events. D&M Partners (a partnership of which D&PL owns 90% and
Monsanto owns 10%) contracts with Monsanto to 1) administer sublicensing to
farmers the right to use the Bollgard and Roundup Ready technologies, 2) bill
for such technologies and 3) collect the sublicensing revenues for using
technology. In its 1998 Annual Report, Monsanto disclosed that all year 2000
remediation work for its internal systems would be completed by the third
calendar quarter of 1999. Monsanto also plans to have contingency plans in place
by the third quarter of 1999 in areas deemed high risk. The Company is not able
to predict at the present time the impact, if any, on its business if Monsanto
is unable to resolve its year 2000 issues successfully.
D&PL's discussion of the year 2000 computer issue contains forward-looking
information. D&PL believes that its critical computer systems will be year
2000-compliant and that the costs to achieve compliance will not materially
affect its financial condition, operating results, or cash flows. Nevertheless,
factors that could cause actual results to differ from the Company's
expectations include the successful implementation of year 2000 initiatives by
its customers and suppliers, changes in the availability and cost of resources
to implement year 2000 changes, and D&PL's ability to successfully identify and
correct all systems affected by the year 2000 issue.
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, year 2000
issues 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:
DPLC's contemplated merger with Monsanto is subject to approval by the
United States Department of Justice, Antitrust Division (USDOJ). The
inability to complete this merger may have a material effect on the
Company. However, such effect is not known at this time.
Demand for D&PL's seed will be affected by government programs and policies
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 and new
technologies that may compete with the Bollgard and Roundup Ready gene
technologies. The Company's seed products and technologies contained
therein 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.
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 domestic and international
operations of D&PL include the use of and the acceptance of products that
were produced from plants that were genetically modified, the testing,
quarantine and other restrictions relating to the import and export of
plants and seed products and the availability (or lack thereof) 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.
The recent publicity related to genetically modified organisms ("GMO's") or
products made from plants that contain GMO's may have an effect on the
Company's sales in the future. In 1999, approximately 80% of the Company's
cotton seed that was sold contained either the Bollgard, Roundup Ready, or
both gene technologies and 64% of the Company's soybean seed sales
contained the Roundup Ready gene technology. Although many farmers have
rapidly adopted these technologies, the alleged concern over finished
products that contain GMO's could impact demand for crops raised from seed
containing such traits.
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 and predictable
than domestic profitability and growth.
Overall profitability will depend on the factors noted above as well as
weather conditions, government policies in all countries where the Company
sells products and operates, worldwide 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 existing and 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 successfully
complete these projects may affect future profitability.
See "Risks and Uncertainties" in Item 7.
ITEM 2. PROPERTIES
D&PL maintains facilities primarily used for research, delinting, conditioning,
storage and distribution. The Company's headquarters is located in Scott,
Mississippi. This location is used for corporate offices, quality assurance,
research and development, sales and marketing, seed production, and cotton
planting seed delinting, conditioning and storage.
The Company's other owned cottonseed delinting, conditioning and storage
facilities are in: Chandler, Arizona (on leased land); Eloy, Arizona;
Hollandale, Mississippi; Tunica, Mississippi; Aiken, Texas and Lubbock, Texas.
The Company has a soybean processing plant in Harrisburg, Arkansas. The Company
also owns cottonseed delinting facilities in Narromine, New South Wales,
Australia, Groblersdal, South Africa, Shijiazhuang, Hebei, China (through a
Chinese joint venture), and Saenz Pena, Chaco, Argentina (through an Argentine
joint venture).
The Company's delinting and conditioning facilities in Scott, Mississippi,
Centre, Alabama, and Tunica, Mississippi were idled in conjunction with a
production and cost optimization program in 1997. The Scott, Mississippi
facility was used for delinting and conditioning during 1999. In 1999, the
Company sold its cottonseed delinting, conditioning, storage facilities and
soybean processing plant in Centre, Alabama and its warehouse at Shelby,
Mississippi. The Company leased an office building and certain seed storage
facilities in Centre from the purchasers of that site.
The Company's plant breeders conduct research at eight facilities in the United
States, five of which are owned by the Company and three of which are leased.
The Company also leases research facilities in Australia, Brazil, and Greece. In
connection with its foundation seed program, the Company leases land in the
United States, Argentina, Costa Rica and South Africa.
All owned properties are free of encumbrances. Management believes that all of
D&PL's facilities, including its conditioning, storage and research facilities,
are well maintained and generally adequate to meet its needs for the foreseeable
future. (See "Liquidity and Capital Resources" in Item 7).
World Headquarters Operations Facilities
- ------------------ ---------------------
Scott, Mississippi, USA Scott, Mississippi, USA
Hollandale, Mississippi, USA
Research Centers Tunica, Mississippi, USA
- ---------------- Chandler, Arizona, USA
Scott, Mississippi, USA Eloy, Arizona, USA
Leland, Mississippi, USA Harrisburg, Arkansas, USA
Casa Grande, Arizona, USA Aiken, Texas, USA
Maricopa, Arizona, USA Lubbock, Texas, USA
Stuttgart, Arkansas, USA Catamarca, Argentina
Hartsville, South Carolina, USA Saenz Pena, Chaco, Argentina
Uberlandia, Minas Gerais, Brazil
Hale Center, Texas, USA Narromine, New South Wales, Australia
Lubbock, Texas, USA Hefei City, Anhui, People's Republic
Goondiwindi, Queensland, Australia of China
Uberlandia, Minas Gerais, Brazil Shijiazhuang, Hebei, People's Republic
Larissa, Greece of China
San Jose, Costa Rica
Groblersdal, South Africa
Foreign Offices
---------------
Narrabri, New South Wales, Australia
Beijing, People's Republic of China
Thessaloniki, Greece
Mexicali, Mexico
Mexico City, Mexico
Zoetermeer, The Netherlands
Asuncion, Paraguay
Seville, Spain
Izmir, Turkey
ITEM 3. LEGAL PROCEEDINGS
On October 14, 1999, the Company, Monsanto and UAP/GA Ag. Chem. Inc. were named
as defendants in two lawsuits filed by two cotton farmers in the United States
District Court for the Western District of North Carolina. The suits allege,
among other things, that certain varieties sold by the Company that contain the
Roundup Ready gene, performed poorly, specifically including lack of tolerance
to Roundup and poor germination. The Company and Monsanto have investigated the
claims to determine the cause or causes of the alleged problems. Pursuant to the
terms of the Roundup Ready Agreement between D&PL and Monsanto, D&PL has
tendered the defense of these claims to Monsanto and requested indemnify.
Pursuant to the Roundup Ready Agreement, Monsanto is contractually obligated to
defend and indemnity the Company against all claims arising out of the failure
of the Roundup glyphosate tolerance gene. D&PL will not have a right to
indemnification from Monsanto, however, for any claim involving defective
varietal characteristics separate from or in addition to the failure of the
herbicide tolerance gene, and such claims are contained in these complaints.
On June 11, 1999, D&PL, Monsanto, Asgrow Seed Company, SF Services, Terral Seed,
Inc., Valley Farmers Co-Op, Red River Co-Op, and Central Louisiana Grain Co-Op
were named as defendants in a lawsuit filed in the Fourth Judicial District,
Parish of Natchitoches, State of Louisiana. The suit alleges, among other
things, that certain soybean seeds which contain the Roundup Ready(R) gene did
not perform as advertised and did not produce promised yields. The plaintiffs in
this case are seeking certification of a class of all purchasers of Roundup
Ready soybeans during the years of 1997 and 1998. The Company and Monsanto are
presently investigating the claim; however, they believe it to be without merit
and their plan is to vigorously defend this lawsuit. Pursuant to the terms of
the Roundup Ready Soybean Agreement between D&PL and Monsanto, D&PL has tendered
the defense of this claim to Monsanto. Pursuant to the Roundup Ready Soybean
Agreement, Monsanto is contractually obligated to defend and indemnify any and
all claims arising out of the failure of glyphosate gene tolerance, and certain
other types of claims. D&PL will have no right to indemnification from Monsanto,
however, for any claim involving defects in seed and/or promotional
representations made solely by D&PL without Monsanto's approval.
Such claims appear to be contained within this complaint.
The Company and Monsanto are named as defendants in four pending lawsuits filed
in the State of Texas. Two lawsuits were filed in Lamb County, Texas on April 5,
1999; one lawsuit was filed in Lamb County, Texas on April 14, 1999; and one
lawsuit was filed in Hockley County, Texas, on April 21, 1999. These lawsuits
were removed to the United States District Court, Lubbock Division, but
subsequently were remanded back to the state court where they were filed. In
each case the plaintiff alleges, among other things, that certain cottonseed
acquired from Paymaster which contained the Roundup Ready gene did not perform
as the farmers had anticipated. These lawsuits also include varietal claims
aimed solely at the Company. This litigation is identical to seed arbitration
claims previously filed in the State of Texas which were concluded in the
Company's favor. The Company and Monsanto have investigated the claims to
determine the cause or causes of the alleged problems. Pursuant to the terms of
the Roundup Ready Agreement between D&PL and Monsanto, D&PL has tendered the
defense of these claims to Monsanto and requested indemnity. Pursuant to the
Roundup Ready Agreement, Monsanto is contractually obligated to defend and
indemnify the Company against all claims arising out of the failure of the
Roundup glyphosate tolerance gene. D&PL will not have a right to indemnification
from Monsanto, however, for any claim involving defective varietal
characteristics separate from or in addition to the failure of the herbicide
tolerance gene, and such claims are contained in these complaints.
The Company, Monsanto and other parties were named as defendants in a lawsuit
filed in the Superior Court of Calhoun County, Georgia on April 19, 1999, which
has been removed to the United States District Court of the Middle District of
Georgia, Albany Division. The Company and Monsanto are presently investigating
the claim to determine the cause or causes, if any, of the alleged problems.
Pursuant to the terms of the Roundup Ready Agreement between D&PL and Monsanto,
D&PL has tendered the defense of this claim to Monsanto and requested indemnity,
as Monsanto is contractually obligated to defend and indemnify the Company
against all claims arising out of the failure of the Roundup glyphosate
tolerance gene. D&PL will not have a right to indemnification from Monsanto,
however, for any claim involving defects in seed separate from or in addition to
the failure of the herbicide tolerance gene, and such claims are contained in
these complaints. This case was the subject of a seed arbitration case filed in
Georgia during 1997 which was concluded in the Company's favor.
The Company and Monsanto were named as defendants in a lawsuit filed in the
Circuit Court of the State of Missouri, County of Dunklin, on April 2, 1999.
This case was subsequently removed to the United States District Court for the
Eastern District of Missouri, but remanded back to the Circuit Court of the
State of Missouri, County of Dunklin. This suit alleges that certain varieties
of cotton offered for sale by D&PL were unmerchantable as a result of the
alleged susceptibility to a malady referred to as bronze wilt. Although this
litigation involves a transgenic variety, there is no allegation in the
complaint sufficient to trigger any contractual obligation to defend or
indemnify under the terms of the Roundup Ready Agreement. A settlement of this
claim has been agreed to (but not yet consummated).
On March 30, 1999, the Company, Asgrow Seed Company, L.L.C., and Terra
International were named as defendants in a lawsuit filed in the Fourth Judicial
District Court, Parish of Morehouse, State of Louisiana, which has now been
removed to the United States District Court for the Western District of
Louisiana. The suit alleges, among other things, that certain soybean seed which
contained the Roundup Ready gene did not properly germinate and did not perform
as the farmer had anticipated and, in particular, did not fully protect their
crops from damage following the application of Roundup. The Company and Monsanto
are presently investigating the claim to determine the cause or causes, if any,
of the alleged problem. Pursuant to the terms of the Roundup Ready Agreement
between D&PL and Monsanto, D&PL has tendered the defense of this claim to
Monsanto. Pursuant to the Roundup Ready Agreement, Monsanto is contractually
obligated to defend and indemnify any and all claims arising out of the failure
of the glyphosate gene tolerance.
In 1999 and 1998, 45 farmers in Mississippi filed seed arbitration claims
against the Company and Monsanto with the Mississippi Department of Agriculture
arising from the 1998 cotton crop. The Mississippi Department of Agriculture
dismissed all but 19 of those claims due to the failure of the farmer to provide
adequate information. Those farmers, however, still have a right to pursue
litigation should they so choose. The remaining arbitration claims were heard in
March of 1999. The Company was exonerated from liability in 16 of those cases.
Three cases resulted in the suggestion of nominal damages. Each of those farmers
has, likewise, the right to pursue litigation should they so choose. Five of the
16 unsuccessful claimants from the 1998 crop year filed suit on May 21, 1999, in
the Circuit Court of Bolivar County, Mississippi, against the Company and
Monsanto. The Company and Monsanto are presently investigating the claims.
Pursuant to the terms of the Roundup Ready Agreement between D&PL and Monsanto,
D&PL has tendered the defense of these claims to Monsanto and requested
indemnity, as Monsanto is contractually obligated to defend and indemnify the
Company against all claims arising out of the failure of the Roundup glyphosate
tolerance gene. D&PL will not have a right to indemnification from Monsanto,
however, for any claim involving defects in seed separate from or in addition to
the failure of the herbicide tolerance gene, and such claims are contained in
these complaints. Additionally, one farmer in Mississippi has filed a seed
arbitration claim against the Company with the Mississippi Department of
Agriculture arising from the 1999 cotton crop. The Mississippi Department of
Agriculture has not yet scheduled a hearing on this claim.
In 1999 and 1998, approximately 210 cotton farmers in Georgia had filed seed
arbitration claims arising from the 1998 cotton crop against the Company, and in
some cases, Monsanto. Approximately 180 of those cases have now been settled.
Those settlements were achieved without any material impact on the Company's
consolidated financial statements. The remaining claimants who had filed for the
1998 crop year still have the right to pursue litigation if they so choose. The
Company believes that these claims can be resolved without any material impact
on the Company's consolidated financial statements.
In 1999, approximately 31 cotton farmers in Georgia have filed seed arbitration
claims against the Company and, in some cases, Monsanto, alleging damages for
their 1999 crop. Six of these claims have been scheduled for hearing, four on
January 11, 2000, and two on January 20, 2000. The Company and Monsanto are in
the process of investigating these claims to determine the cause or causes, if
any, of the alleged problems. Pursuant to the terms of the Roundup Ready
Agreement between D&PL and Monsanto, D&PL has tendered the defense of these seed
arbitration claims to Monsanto and has requested indemnity. Pursuant to the
Roundup Ready Agreement, Monsanto is contractually obligated to defend and
indemnify the Company against all claims arising out of the failure of the
Roundup glyphosate tolerance gene. D&PL will not have a right to
indemnification, however, for any claim involving defects in the seed, separate
from or in addition to the failure of the herbicide tolerance gene, and such
claims are contained in some of the seed arbitration claims filed.
In 1998, one claim was filed with the Arkansas Seed Arbitration Council. A
Motion to Dismiss has been filed. This case alleges that certain Roundup Ready
cottonseed marketed by the Company in 1997 failed to perform as farmers had
anticipated and caused the farmers to suffer crop loss. Pursuant to the Roundup
Ready Agreement between D&PL and Monsanto, D&PL has tendered the defense of this
claim to Monsanto. Pursuant to the Roundup Ready Agreement, Monsanto is
contractually obligated to defend and indemnify any and all claims arising out
of the failure of the glyphosate gene tolerance.
In 1999 and 1998, three farmers in the State of Florida had filed arbitration
claims against the Company. Two of those claims have now been resolved. A
hearing was conducted on the remaining claim on October 12, 1999; however, no
ruling has yet been received.
The Company, certain subsidiaries of Monsanto and others were named as
defendants in a lawsuit filed in the Civil District Court, Williamson County,
Texas, 277th Judicial District, in April 1997. The plaintiffs allege, among
other things, that certain cottonseed acquired from Monsanto in the Hartz Cotton
acquisition and subsequently sold by the Company, failed to perform as
represented allegedly resulting in lost yield. Pursuant to the Hartz Cotton
acquisition agreement, the Company is entitled to indemnification from Monsanto
for damages resulting from the sale of bagged seed inventories acquired by D&PL
in that acquisition. Some or all of the seed involved in this case may meet this
criteria and D&PL will therefore be entitled to indemnification from Monsanto
for any losses resulting from such seed. In October 1999, this case was
dismissed and the parties to this litigation, including the Company and
Monsanto, agreed to mediate the claims which were the subject of this lawsuit.
Should mediation fail, the parties have agreed to enter into binding
arbitration.
The Company, Monsanto and other third parties were named as defendants in
lawsuits filed (i) in the District Court of Falls County, Texas, in August 1996
and (ii) in the District Court of Robertson County, Texas, in March 1998. The
plaintiffs allege, among other things, that D&PL's cottonseed varieties, which
contain Monsanto's Bollgard gene, did not perform as the farmer had anticipated
and, in particular, did not fully protect their cotton crops from certain
lepidopteran insects. On or about October 8, 1999, a settlement of the Falls
County case was agreed upon, but it has not yet been consummated.
In May 1998, five individual alleged shareholders brought suits against
Monsanto, the Company and its Board of Directors ("Directors") in the Court of
Chancery in New Castle County, Delaware. The complaints alleged that the
consideration to be paid in the proposed merger of the Company with Monsanto is
inadequate and that the Company's Directors breached their fiduciary duties to
the Company's stockholders by voting to approve the Agreement and Plan of
Merger, and that Monsanto aided and abetted the alleged breach of fiduciary
duty. The complaints were consolidated into one action, which sought a
declaration that the action was maintainable as a class action, that the merger
be enjoined, or alternatively, rescinded, and/or an award of unspecified
compensatory damages if the merger was consummated. A settlement agreement was
reached with the named plaintiffs in November 1998. The parties intend to apply
to the Court for a date for a hearing on approval of the settlement which, if
approved, will not have a material effect on the Company's consolidated
financial statements.
In October 1996, Mycogen Plant Science, Inc. and Agrigenetics, Inc.
(collectively "Mycogen") filed a lawsuit in U.S. District Court in Delaware
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
making, selling, and licensing seed that contains the Bollgard gene. The suit,
which went to trial in January 1998, sought injunctions against alleged
infringement, compensatory damages, treble damages and attorney's fees and court
costs. A jury found in favor of D&PL and Monsanto on issues of infringement.
Mycogen subsequently re-filed a motion for a new trial and for a judgment in
favor of Mycogen as a matter of law. The trial court has ruled in these motions
holding for Mycogen on certain issues but sustaining the jury verdict in favor
of D&PL and Monsanto. Mycogen has appealed to the U.S. Court of Appeals for the
Federal Circuit. Pursuant to the terms of the Bollgard Agreement, Monsanto is
required to defend D&PL against patent infringement claims and indemnify D&PL
against damages from any patent infringement claims and certain other losses and
costs.
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 $700,000 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's
consolidated financial statements. The Company continues to offer seed for sale
in Guatemala.
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. (which own the outstanding common stock of
Sure Grow Seed, Inc). The CID states that the USDOJ is investigating whether
these transactions may have violated the provisions of Section 7 of the Clayton
Act, 15 USC 18. D&PL has responded to the CID, employees were examined in 1997
by the USDOJ, and D&PL is committed to full cooperation with the USDOJ. At the
present time, the ultimate outcome of the investigation cannot be predicted.
On August 9, 1999, D&PL and Monsanto received Civil Investigative Demands from
the USDOJ, seeking to determine whether there have been any inappropriate
exchanges of information between Monsanto and D&PL or if any prior acquisitions
are likely to have substantially lessened competition in the sale or development
of cottonseed or cottonseed genetic traits. D&PL is complying with the USDOJ's
request for information and documents and with the recent Civil Investigative
Demand.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the vote of security holders during the fourth
quarter of 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's stock trades on the New York Stock Exchange (the "NYSE") under the
trading symbol DLP. The range of closing prices for these shares for the last
two fiscal years, as reported by the NYSE after adjustment for a stock split,
was as follows:
Common Stock Data* 1st Qtr 2nd Qtr 3rd Qt 4th Qtr
- ------------------ ------- ------- ------ -------
1998
Market Price Range - Low $ 23.69 $ 24.50 $ 42.19 $ 41.25
- High 32.56 39.19 53.75 49.94
1999
Market Price Range - Low $ 25.62 $ 29.31 $ 28.38 $ 26.75
- High 48.69 38.31 37.75 32.00
* Amounts have been adjusted for a stock split.
In October 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 the par value per share, distributed on November 20, 1997 to the
stockholders of record on November 10, 1997. The stock split described above has
been reflected in the accompanying financial statements and elsewhere in this
Annual Report.
Annual dividends of $0.12 per share were paid in 1998 and 1999. The Board of
Directors maintained the quarterly dividend rate of $0.03 per share after the
above stock split which in effect increased the dividend paid. It is anticipated
that quarterly dividends of $0.03 per share will continue to be paid in the
future. The Board of Directors reviews this policy quarterly, however, pursuant
to the Merger Agreement, D&PL cannot increase the dividend rate without
Monsanto's consent. See Footnote 13 to the Consolidated Financial Statements
contained in Item 8 to this Part II. Aggregate dividends paid in 1999 were $4.8
million and should approximate $5.0 million in 2000.
On October 31, 1999, there were approximately 9,000 shareholders of the
Company's 38,685,482 outstanding shares.
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS (In thousands, except per share amounts)
YEAR ENDED AUGUST 31, 1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Operating Results :
Net sales and licensing fees $ 98,950 $153,271 $183,249 $192,339 $260,465
Special charges, charges
related to acquisitions and inventory
write downs (1) -- 1,418 20,700 22,662 29,884
Net income applicable to common shares 10,935 15,237 6,850 1,783 7,477
Balance Sheet Summary:
Current assets $ 36,296 $111,940 $145,449 $174,502 $217,543
Current liabilities 24,695 75,966 112,524 116,136 172,040
Working capital 11,601 35,974 32,925 58,366 45,503
Total assets 87,542 179,660 220,656 251,791 295,758
Long-term debt 12,814 31,465 30,572 47,070 17,000
Stockholders' equity 47,860 69,341 72,531 80,651 89,404
Per Share Data:
Net income applicable to common shares -Basic(2) $ 0.29 $ 0.41 $ 0.18 $ 0.05 $ 0.19
Book value(2) 1.29 1.86 1.93 2.12 2.33
Cash dividends 0.045 0.062 0.078 0.12 0.12
Weighted average number of shares
used in per share calculations - Basic(2) 37,077 37,292 37,579 38,011 38,438
- --------------------------------------------------------------------------------------------------------------
(1) In 1997, the Company announced a production and cost optimization program
which resulted in the Company taking a special charge of $19.0 million
along with $1.7 million for nonrecurring charges related to acquisitions.
In 1998, the Company reported (a) a $17.5 million special charge for
inventory write offs due to a reduction in cotton acreage in 1998, the
realignment of the Company's product line to seed with new technologies and
the recall of certain products that did not meet quality standards and (b)
$5.1 million in costs associated with the Company's evaluation of various
strategic alternatives and the Monsanto merger. In 1999, the Company
reported a) special charges for inventory write-offs of $15.2 million
resulting from the Company's decision to bring in additional seed in 1999
to ensure that ample seed of both transgenic and conventional varieties
were available and since actual soybean sales were one-third less than
expected, b) special charges of approximately $9.0 million related to the
acquisition by Monsanto c) nonrecurring charges for severance pay and
relocation expenses of $2.0 million related to a reorganization of the
sales and marketing and technical services divisions and d) the loss on the
disposal of fixed assets and other nonrecurring charges of $3.7 million.
(2) Adjusted for the effects of applying SFAS No. 128, "Earnings Per Share".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Increased sales of the Company's transgenic cotton varieties containing the
Bollgard and Roundup Ready gene technologies, or both, to 80% of total unit
sales coupled with increased sales in Australia and China are the major reasons
that D&PL reported record sales of $260.5 million up from $192.3 million in
1998. The Company sold in the U.S. sufficient quantities of seed containing the
transgenic traits to plant approximately 6.7 million acres in 1999 versus
approximately 3.8 million acres in 1998. Domestic upland cotton acreage
increased to 14.2 million acres in 1999 from 13.1 million acres in 1998 even
though cotton prices were at recent record lows. Since the prices of crops that
compete for the cotton acreage in D&PL's primary territory (corn and soybeans)
were also lower, cotton acreage was favorably affected.
Soybean unit sales, although 16% greater than 1998 levels, were significantly
(one-third) lower than forecast. Since soybeans do not carry over from year to
year, the inventory purchased to meet the demand that did not materialize was
written down to net realizable value at year end.
Cottonseed sales by the Company's joint venture in China nearly doubled in 1999
over 1998 levels. The venture sold enough seed to plant over 300,000 acres up
from 180,000 acres in 1998. In addition, the Company's Australian subsidiary's
sales doubled due to the sale of transgenic products and, as a result, reported
its first ever operating profit which reduced the pretax operating loss from all
international operations to $2.1 million in 1999 from $3.0 million in 1998.
Due to the uncertainty by the Company of planted acres in 1999, and the
Company's uncertainty of the rate at which farmers would continue to plant
transgenic products compared to conventional products, the Company purchased
additional quantities of seed to ensure that it had an adequate supply of seed
of both conventional and transgenic varieties to meet demand by its farmer
customers. The accelerated shift to transgenic cottonseed products which
complicates inventory management and product line design, coupled with
significantly less than expected soybean sales, resulted in the Company
recording inventory write-offs of $15.2 million in excess of normal levels. Such
excess portion is separately stated as a component of cost of sales.
In July 1999, the Company announced the consolidation of the three divisional
sales and marketing staffs and three divisional technical services staffs into
one corporate wide sales and marketing team and one corporate wide technical
services team that will serve the three brands (Deltapine, SureGrow, and
Paymaster). Approximately forty salaried positions were eliminated which
generated severance pay and relocation costs of approximately $2 million which
were recorded as special charges. Future savings are expected to be $4 million
annually. The three divisional research programs were combined into a single
company wide program, and two new research programs were launched in the
Company's effort to invest its resources where it believes it has the best
opportunity for developing new products for commercial introduction.
In 1998, the Company recorded special and nonrecurring pretax charges of
$22,662,000 that relate to additional inventory reserves and, to a lesser
degree, costs related to the evaluation of various strategic alternatives which
ultimately resulted in the Company entering into the Merger Agreement with
Monsanto. The unprecedented level of inventory reserves and write-offs were a
result of excess inventory quantities resulting from a 7% reduction in acreage
and the realignment of the Company's product line. Furthermore, the Company's
domestic market share declined which the Company believes resulted from the
second quarter recall of certain varieties that did not meet quality standards
that contained both the Bollgard and Roundup Ready gene technologies. The
accelerated shift to transgenic products significantly complicates inventory
management and product line design and will require continued dedicated efforts
to effectively manage the Company's changing product line. The costs related to
the merger are primarily fees for legal advice, investment bankers and other
professionals.
In 1997, D&PL announced a program to optimize production cost and operating
efficiencies which included the idling of three of its less efficient delinting
plants, the write down of assets whose value has been impaired as a result of
implementing the plan, plant consolidation costs relating to implementation of a
new process manufacturing system and costs to phase out certain products. The
Company reduced its existing domestic work force as a result of the plant
closings and by offering an early retirement program to all employees who met
certain criteria.
Net Sales and Licensing Fees
In 1999, D&PL's consolidated net sales and licensing fees increased 35.5% to
$260.5 million from 1998 sales of $192.3 million. The increase is primarily the
result of (a) increased sales of upland picker cottonseed varieties that contain
either or both of the Bollgard and Roundup Ready genes, (b) increased sales of
Roundup Ready soybeans and (c ) record sales reported by the Australian
subsidiary and the joint venture in China. In 1999, transgenic cottonseed sales
comprised approximately 80% of total domestic unit sales of cottonseed, compared
to approximately 65% in 1998. Roundup Ready soybean units comprised
approximately 64% of total units sold in 1999 compared to 44% in 1998.
International sales increased to $26.5 million in 1999 from $21.7 million in
1998 due to sales increases in Australia and China which resulted in both
entities reporting profits in 1999. The effects of these increases were
partially offset by a decline in export sales to Mexico which was caused by a
reduction in planted cotton acreage due to inclement weather and lower commodity
prices.
In 1998, D&PL's consolidated net sales and licensing fees increased 5.0% to
$192.3 million from 1997 sales of $183.2 million. The increase is primarily the
result of (a) increased sales of stripper cottonseed containing Monsanto's
Roundup Ready gene (b) increased sales of picker cottonseed containing both the
Bollgard and Roundup Ready genes, and (c) the commercial introduction of soybean
seed containing Monsanto's Roundup Ready gene. These increases were partially
offset by lower sales of picker cottonseed varieties resulting from inclement
weather during the planting season and commodity prices. The USDA estimated that
the planted cotton acreage approximated 12.8 million acres in 1998 (subsequently
revised to 13.1 million) which is a decrease from 1997 cotton acres planted of
13.8 million. Soybean unit sales increased 8.7% over 1997 due to increased
planted soybean acres and market share gains by the Company's varieties. In
1998, the Company and Monsanto changed the method used to calculate the acres to
be used for billing purposes for the Bollgard and Roundup Ready gene
technologies. In prior years, the farmers were billed based on their stated
planting rates, which, if within a prescribed range for a particular geographic
territory, were used for purposes of calculating the number of licensed acres
and therefore billable acres. In 1998, assumed planting rates were established
by D&PL and Monsanto for seven specific territories and farmers were billed for
the number of acres that could be planted for each bag of seed sold, using the
predetermined territorial formula. In 1998, total transgenic seed sales
comprised approximately 65% of total domestic unit sales of cottonseed, compared
to 36% in 1997. Roundup Ready soybean units comprised 44.0% of total units sold
in 1998 versus less than 1% in 1997. International sales (including exports)
increased 46.3% in 1998 to $21.8 million from $14.9 million in 1997, primarily
from the initial sales derived from Hebei Jai Dai, the joint venture in
Shiujiazhuang, Hebei, People's Republic of China.
Gross Profit
D&PL's consolidated gross profit after special cotton and soybean seed inventory
write-offs of $15.2 million was $75.2 million in 1999 compared to $53.6 million
in 1998. Special pretax charges of $15.2 million were recorded in 1999 that
relate to the write-off of excess cottonseed and soybean seed. The cottonseed
was purchased to ensure that D&PL had ample supplies of both conventional and
transgenic cottonseed varieties since management was uncertain of the ultimate
sales mix for the 1999 season. Commodity prices of corn, cotton and soybeans,
and their impact on farmer planting decisions, the increased flexibility of
planting decisions by farmers afforded by the Freedom to Farm Act, coupled with
wide scale availability in 1999 of cottonseed of varieties that contained both
the Bollgard and Roundup Ready genes (which were available only in limited
quantities and varieties in 1998) as well as the introduction of new varieties,
made forecasting with any degree of certainty difficult. The Company wanted to
be prepared to meet farmer demand and purchased additional seed in 1999 to
ensure it had adequate supplies of both conventional and transgenic varieties.
Soybean seed sales were one-third less than planned for, and the resultant
excess inventory (approximately $4 million) was written off at year end. The
product line of both cotton and soybeans continue to realign to those varieties
with transgenic traits. Gross margin (expressed as a percentage of sales) before
special inventory charges was 35% in 1999 compared to 36% in 1998. The decline
is attributable to increased sales of transgenic cottonseed varieties which
carry a lower gross margin compared to conventional varieties since the
Company's gross margin on technology fees approximates 30%.
D&PL's consolidated gross profit after special and nonrecurring charges was
$53.6 million in 1998 compared to $55.5 million in 1997. Special pretax charges
of approximately $17.5 million were recorded in 1998 that relate to (a)
additional inventory reserves established to provide for excess inventory
resulting from a 7% reduction in planted cotton acres in 1998 and the further
realignment of the Company's product line to seed with new technologies, and (b)
a recall of certain products that did not meet the Company's quality standards.
Gross margin (expressed as a percentage of sales) before the special charges was
consistent between 1998 and 1997 at 36%.
Operating Expenses
Operating expenses before special charges increased to $46.4 million in 1999
from $42.2 million in 1998 due in part to international joint ventures.
Recurring operating expenses are expected to remain consistent in 2000 with 1999
levels. Special charges related to severance pay and benefits of $2.0 million
resulting from the elimination of the divisional sales and marketing and
divisional technical services staffs, and costs associated with the merger with
Monsanto which approximated $9.0 million, are included as operating expenses.
These charges are in addition to the inventory write-offs noted earlier which
are recorded as cost of sales. In 1998, the Company's total operating expenses
increased, as planned, to $42.2 million before special charges, from $34.8
million before special charges in 1997.
Research and Development Expenses
Research and development expenses increased 12.3% to $18.7 million in 1999 from
$16.7 million in 1998. The increase was primarily attributable to increased
transgenic seed development activities, additional variety trials and seed
testing and increased cotton research activities in Argentina, Australia,
Brazil, China, Greece, and Spain. The Company expects further increases in
research and development expenses in 2000 since it plans to start two new
domestic cotton breeding programs.
Research and development expenses increased 22.0% to $16.7 million in 1998 from
$13.7 million in 1997. The increase was primarily the result of additional
transgenic costs associated with development and evaluation of new technologies,
transformation of the Company's product line and collaboration with outside
research providers.
Selling Expenses
Selling expenses increased 7.0% to $16.1 million in 1999 from $15.0 million in
1998. The increase is related to higher fees paid to the California Department
of Food and Agriculture on seed sales, sales and marketing activities by the
Company's joint ventures in Argentina and Brazil, increased advertising, and the
costs associated with an incentive program designed to promote the sale of
transgenic seed.
Selling expenses increased 35.8% in 1998 to $15.0 million from $11.1 in 1997.
The increase was primarily due to an aggressive advertising and promotional
program and expansion of international sales and marketing in China.
General and Administrative Expenses
General and administrative expenses increased 10.7% to $11.6 million in 1999
from $10.5 million in 1998. The increase relates to expenses related to
operations in Argentina and Brazil and higher legal fees associated with non
U.S. patents, trademark and variety registrations. General and administrative
expenses were essentially flat between 1998 and 1997.
Special Charges and Unusual Charges Related to Acquisitions
The Company incurred approximately $9.0 million in costs related to the planned
merger with Monsanto. Such costs are primarily legal and professional fees and
reserves established for losses on the planned disposition of certain assets
that may be necessary to close the merger with Monsanto. The Company also paid
severance and related benefits of approximately $2.0 million to approximately
forty employees who were terminated in August, 1999 in connection with the
reorganization of the sales and marketing and technical services departments.
In connection with the evaluation and pursuit of various strategic alternatives
and ultimately the planned merger with Monsanto (see Item 1), the Company
incurred, in 1998, approximately $5.1 million associated with legal, investment
banker and other professional fees.
In connection with the 1997 production and cost optimization program, the
Company recorded or special charge of $19.0 million of which $11.5 million was
included in cost of sales and $7.5 million was included in operating expenses.
These charges include costs associated with the plan to optimize operating
efficiencies, plant consolidation costs, costs to phase out certain products,
the write down of assets whose value has been impaired as a result of the plan
and, to a lesser extent, severance costs.
In connection with the merger with the Sure Grow Companies, the Company recorded
approximately $1.7 million during fiscal 1997 for costs associated with this
transaction including legal costs incurred in connection with the U. S.
Department of Justice's review of that transaction.
Interest Expense
Interest expense net of interest income increased 8.1% to $3.5 million in 1999
from $3.2 million in 1998 which was attributable to higher bank fees and lower
capitalized interest.
Interest expense increased 47.0% to $3.2 million in 1998 from $2.2 million in
1997. The increase was primarily due to higher outstanding borrowings throughout
the year used to finance international ventures and higher inventory levels, the
effects of which were partially offset by lower interest rates.
Other Income/Expense
In 1999, the Company recorded losses on the disposition of fixed assets and
other non-recurring charges of $3.7 million. In 1997 and 1998, other
income/expense included primarily gains on sales of fixed assets and accounts
payable discounts received for early payments.
Net Income and Earnings Per Share
Net income applicable to common shares increased to $7.5 million in 1999 from
$1.8 million in 1998 and $6.9 million in 1997. Net income per share (diluted)
after special and nonrecurring charges was $0.18, $0.04 and $0.17 in 1999, 1998
and 1997, respectively. Net income per share (diluted) before special and
nonrecurring charges was $0.66, $0.37 and $0.54 in 1999, 1998 and 1997,
respectively. The number of shares deemed outstanding was 40.9 million, 40.8
million and 40.1 million in 1999, 1998 and 1997, respectively.
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 18 years D&PL has borrowed on a short-term basis to
meet seasonal working capital needs.
In the United States, 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 by the first fiscal quarter of
the following year. D&PL also offers customers financial incentives to make
early payments. In fiscal 1999, D&PL received approximately $10.2 million in
early payments. To the extent D&PL attracts early payments from customers, bank
borrowings under the credit facility are reduced.
The Company records receivables for licensing fees on Bollgard and Roundup Ready
seed sales as the seed is shipped, usually in the Company's second and third
quarters. The Company has contracted the billing and collection activities for
Bollgard and Roundup Ready licensing fees to Monsanto. In September, the
technology fees are due at which time D&PL receives payment from Monsanto. D&PL
then pays Monsanto its royalty for the Bollgard and Roundup Ready licensing
fees.
In April 1998, the Company entered into a syndicated credit facility with its
existing lender and two other financial institutions which provides for
aggregate borrowings of $110 million. This agreement provides a base commitment
of $55 million and a seasonal commitment of $55 million. The base commitment is
a long-term loan that may be borrowed upon at any time and is due April 1, 2001.
The seasonal commitment is a working capital loan that may be drawn upon from
September 1 through June 30 of each fiscal year and expires April 1, 2001. Each
commitment offers variable and fixed interest rate options and requires the
Company to pay facility or commitment fees and to comply with certain financial
covenants. At August 31, 1999, the Company had $38.0 million available for
borrowing under the base commitment. In addition the lead lender has approved a
$25.0 million credit line that can be activated by the Company as needed. On
April 15, 1999, the Company activated the previously approved $25.0 million
additional seasonal credit facility. Such facility was available from April 15,
1999 to September 1, 1999 and incurred interest at rates comparable to the
existing facility.
The financial covenants under the loan agreements require the Company to: (a)
maintain a ratio of total liabilities to tangible net worth at August 31, of
less than or equal to 2.25 to 1 (4.0 to 1.0 at the Company's other quarter ends)
(b) maintain a fixed charge ratio at the end of each quarter greater than or
equal to 2.0 to 1.0 and (c) maintain at all times tangible net worth of not less
than the sum of (i) $40 million plus (ii) 50% of net income (but not losses)
determined on the last day of each fiscal year, commencing with August 31, 1998.
At August 31, 1998 and 1999 the Company's ratio of total liabilities to tangible
net worth exceeded the permitted ratio. The financial institutions waived
compliance with this covenant. See Note 4 of the Notes to Consolidated Financial
Statements in Item 8.
Capital expenditures were $8.1 million, $10.2 million and $16.5 million in
fiscal 1999, 1998 and 1997, respectively. The Company anticipates that domestic
capital expenditures will approximate $8.0 million in 2000, 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. Capital expenditures in 2000 for international ventures are expected
to range from $1.0 million to $2.0 million depending on the timing and outcome
of such projects.
Cash provided from operations, early payments from customers and borrowings
under the loan agreement should be sufficient to meet the Company's 2000 working
capital needs.
RISKS AND UNCERTAINTIES
From time to time, the Company may publish forward-looking statements relating
to such matters as anticipated financial performance, existing products,
technical developments, new products, research and development activities,
preparation for year 2000 issues, 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
filing and the following:
D&PL's contemplated merger with Monsanto is subject to approval by the
United States Department of Justice Antitrust Division. The inability to
complete this merger may have a material effect on the Company. However,
such effect is not known at this time.
Demand for D&PL's seed will be affected by government programs and policies
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 and new
technologies that may compete with the Bollgard and Roundup Ready gene
technologies. The Company's seed products and technologies contained
therein 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.
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 domestic and international
operations of D&PL include the use of and the acceptance of products that
were produced from plants that were genetically modified, the testing,
quarantine and other restrictions relating to the import and export of
plants and seed products and the availability (or lack thereof) 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.
The recent publicity related to genetically modified organisms ("GMO's") or
products made from plants that contain GMO's may have an effect on the
Company's sales in the future. In 1999, approximately 80% of the Company's
cottonseed that was sold contained either the Bollgard, Roundup Ready, or
both gene technologies and 64% of the Company's soybean seed sales
contained the Roundup Ready gene technology. Although many farmers have
rapidly adopted these technologies, the alleged concern over finished
products that contain GMO's could impact demand for crops raised from seed
containing such traits.
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 and predictable
than domestic profitability and growth.
Overall profitability will depend on the factors noted above as well as
weather conditions, government policies in all countries where the Company
sells products and operates, worldwide 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 existing and 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 successfully
complete these projects may affect future profitability.
IMPLEMENTATION OF FINANCIAL ACCOUNTING STANDARDS
SFAS No. 130, "Reporting Comprehensive Income," establishes new standards for
reporting comprehensive income and its components (revenues, expenses, gains and
losses) in financial statements. This statement is effective for fiscal years
beginning after December 15, 1997. The Company adopted the disclosure
requirements of SFAS No. 130 in fiscal 1999.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. This statement is
effective for financial statements for periods beginning after December 15,
1997. The Company adopted the year end disclosure requirements of SFAS No. 131
in fiscal 1999.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of those plans.
This statement is effective for fiscal years beginning after December 15, 1997.
The Company adopted the year end disclosure requirements of SFAS No.
132 in fiscal 1999.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for the derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The effective date of this statement was delayed via the
issuance of SFAS No. 137. The effective date for SFAS No. 133 is now for fiscal
years beginning after June 15, 2000, though earlier adoption is encouraged and
retroactive application is prohibited. Therefore D&PL must adopt the statement
no later than September 1, 2000. Management does not expect the adoption of this
statement to have a material impact on D&PL's results of operations, financial
position or cash flows.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants released SOP 98-5 requiring that
start-up activities be expensed as incurred. SOP 98-5 is effective for fiscal
years beginning after December 31, 1998. The Company will adopt this SOP
beginning fiscal year 2000. At August 31, 1999, D&PL had pretax costs
aggregating approximately $1,000,000 recorded as startup costs related primarily
to its international joint ventures.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Financial Statements Page(s)
The following consolidated financial statements of Delta and Pine Land Company
and subsidiaries are submitted in response to Part II, Item 8:
Report of Independent Public Accountants.................................30
Consolidated Statements of Income - for each of the three years in the
period ended August 31, 1999........................................31
Consolidated Balance Sheets - August 31, 1998 and 1999...................32
Consolidated Statements of Cash Flows - for each of the three years in the
period ended August 31, 1999........................................33
Consolidated Statements of Stockholders' Equity - for each of the three
years in the period ended August 31, 1999...........................34
Notes to Consolidated Financial Statements...............................35
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO DELTA AND PINE LAND COMPANY:
We have audited the accompanying consolidated balance sheets of DELTA AND PINE
LAND COMPANY (a Delaware corporation) and subsidiaries as of August 31, 1998 and
1999, and the related consolidated statements of income, cash flows and
stockholders' equity for each of the three years in the period ended August 31,
1999. These financial statements are the responsibility of the Company's
management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Delta and Pine Land
Company and subsidiaries as of August 31, 1998 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
August 31, 1999, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Memphis, Tennessee,
November 15, 1999.
MANAGEMENT'S REPORT:
The Company is responsible for preparing the financial statements and related
information appearing in this report. Management believes that the financial
statements present fairly the Company's financial position, its results of
operations and its cash flows in conformity with generally accepted accounting
principles. In preparing its financial statements, the Company is required to
include amounts based on estimates and judgments that it believes are reasonable
under the circumstances.
The Company maintains accounting and other systems designed to provide
reasonable assurance that financial records are reliable for purposes of
preparing financial statements and that assets are properly accounted for and
safeguarded. Compliance with these systems and controls is reviewed by executive
management and the accounting staff. Limitations exist in any internal control
system, recognizing that the system's cost should not exceed the benefits
derived.
The Board of Directors pursues its responsibility for the Company's financial
statements through its Audit Committee, which is composed solely of directors
who are not Company officers or employees. The Audit Committee meets at least
annually with the independent public accountants and management. The independent
public accountants have direct access to the Audit Committee, with and without
the presence of management representatives.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATE STATEMENTS OF INCOME
(In thousands, except per share amounts)
FOR THE YEARS ENDED AUGUST 31, 1997 1998 1999
---- ---- ----
NET SALES AND LICENSING FEES $ 183,249 $ 192,339 $ 260,465
COST OF SALES (116,289) (121,246) (170,127)
SPECIAL CHARGES (11,500) (17,527) (15,187)
------- ------- -------
GROSS PROFIT 55,460 53,566 75,151
OPERATING EXPENSES:
Research and development 13,651 16,656 18,702
Selling 11,053 15,006 16,054
General and administrative 10,136 10,501 11,624
Special charges and unusual charges related to acquisitions 9,200 5,135 10,997
----- ----- ------
44,040 47,298 57,377
------ ------ ------
OPERATING INCOME 11,420 6,268 17,774
INTEREST EXPENSE, net (2,204) (3,241) (3,502)
OTHER 463 159 (3,272)
--- --- ------
INCOME BEFORE INCOME TAXES 9,679 3,186 11,000
PROVISION FOR INCOME TAXES (2,766) (1,307) (3,427)
------ ------ ------
NET INCOME 6,913 1,879 7,573
DIVIDENDS ON PREFERRED STOCK (63) (96) (96)
--- --- ---
NET INCOME APPLICABLE TO COMMON SHARES $ 6,850 $ 1,783 $ 7,477
========= ========= =========
BASIC EARNINGS PER SHARE $ 0.18 $ 0.05 $ 0.19
========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN PER SHARE CALCULATIONS - BASIC 37,579 38,011 38,438
====== ====== ======
DILUTED EARNINGS PER SHARE $ 0.17 $ 0.04 $ 0.18
========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN PER SHARE CALCULATIONS - DILUTED 40,129 40,839 40,973
====== ====== ======
The accompanying notes are an integral part of these consolidated statements.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF
AUGUST 31,
(In thousands, except share and per share amounts)
ASSETS 1998 1999
- ------ ---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 8,062 $ 7,552
Receivables, net of allowance of $369 and $475 104,779 147,926
Inventories 50,497 47,727
Prepaid expenses 1,194 1,473
Income taxes receivable 5,562 -
Deferred income taxes 4,408 12,865
----- ------
Total current assets 174,502 217,543
------- -------
PROPERTY, PLANT AND EQUIPMENT, net 66,840 65,166
EXCESS OF COST OVER NET ASSETS OF
BUSINESSES ACQUIRED, net of accumulated amortization of $369 and $491 4,583 4,458
INTANGIBLES, net of accumulated amortization of $543 and $650 3,488 4,365
OTHER ASSETS 2,378 4,226
----- -----
TOTAL ASSETS $ 251,791 $ 295,758
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 1,263 $ 3,819
Accounts payable 23,310 19,990
Accrued expenses 91,563 140,149
Income taxes payable - 8,082
----- -----
Total current liabilities 116,136 172,040
------- -------
LONG-TERM DEBT 47,070 17,000
------ ------
DEFERRED INCOME TAXES 5,020 5,773
----- -----
COMMITMENTS AND CONTINGENCIES (Notes 7 and 12)
MINORITY INTEREST IN SUBSIDIARIES 2,914 11,541
----- ------
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;
429,319 shares authorized; no shares issued or outstanding - -
Series M Convertible Non-Voting Preferred, par value $0.10 per share;
1,066,667 shares authorized, issued and outstanding 107 107
Common stock, par value $0.10 per share; 100,000,000 shares authorized;
38,469,617 and 38,664,565 shares issued;
38,355,350 and 38,550,299 shares outstanding 3,847 3,866
Capital in excess of par value 35,840 41,179
Retained earnings 46,109 48,970
Accumulated other comprehensive income (3,079) (2,545)
Treasury stock at cost (114,266 shares in 1998 and 1999) (2,173) (2,173)
------ ------
Total stockholders' equity 80,651 89,404
------ ------
Total liabilities and stockholders' equity $ 251,791 $ 295,758
============= =============
The accompanying notes are an integral part of these consolidated balance
sheets.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31,
(in thousands)
1997 1998 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,913 $ 1,879 $ 7,573
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 5,060 6,654 6,882
Noncash items associated with special charges and disposition of assets 12,242 9,865 8,902
Minority interest in subsidiaries 991 1,923 8,627
Change in deferred income taxes (12) (357) (7,704)
Changes in current assets and liabilities:
Receivables (28,787) (9,342) (42,822)
Inventories (5,255) (17,476) (4,416)
Prepaid expenses (804) 973 (279)
Accounts payable 4,159 3,718 (3,320)
Accrued expenses 31,195 846 48,559
Income taxes (1,382) (7,518) 13,644
Decrease (increase) in intangibles and other assets 416 157 (2,769)
--- --- ------
Net cash provided by (used in) operating activities 24,736 (8,678) 32,877
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (16,454) (10,242) (8,093)
Sale of investments and property - 1,350 100
----- ----- ---
Net cash used in investing activities (16,454) (8,892) (7,993)
------- ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of short-term debt (31,226) (35,190) (53,889)
Payments of long-term debt (20,893) (7,930) (38,185)
Dividends paid (3,023) (4,664) (4,712)
Proceeds from long-term debt 20,000 24,428 9,000
Proceeds from short-term debt 28,890 36,193 56,500
Purchase of common stock (2,173) - -
Proceeds from exercise of stock options
and tax benefit of stock option exercises 2,135 13,077 5,358
----- ------ -----
Net cash (used in) provided by financing activities (6,290) 25,914 (25,928)
------ ------ -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,992 8,344 (1,044)
Effects of foreign currency translation (losses) GAINs (662) (2,172) 534
CASH AND CASH EQUIVALENTS, beginning of year 560 1,890 8,062
--- ----- -----
CASH AND CASH EQUIVALENTS, end of year $ 1,890 $ 8,062 $ 7,552
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of capitalized interest $ 2,000 $ 3,500 $ 3,600
Income taxes paid $ 4,600 $ 2,600 $ 600
The accompanying notes are an integral part of these consolidated statements.
DELTA AND PINE LAND COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED AUGUST 31, 1997, 1998 AND 1999
(In thousands, except per share data)
Capital in Total
Preferred Common Excess of Retained Comprehensive Treasury Stockholders'
Stock Stock Par Value Earnings Income Stock Equity
----- ----- --------- -------- ------ ----- ------
Balance at August 31, 1996 $ 107 $ 3,756 $ 20,719 $ 45,004 $ (245) $ - $ 69,341
Net income - - - 6,913 - - 6,913
Foreign currency translation - - - - (662) - (662)
Total comprehensive income 6,251
-----
Exercise of stock options and tax
of stock option exercises - 16 2,119 - - - 2,135
Cash dividends, $0.078 per share - - - (3,023) - - (3,023)
Purchase of common stock - - - - - (2,173) (2,173)
-------- ----- ------ ------ ---- ------ ------
Balance at August 31, 1997 $ 107 3,772 22,838 48,894 (907) (2,173) 72,531
Net income - - - 1,879 - - 1,879
Foreign currency translation - - - - (2,172) - (2,172)
Total comprehensive (loss) (293)
Exercise of stock options and tax
benefit of stock option exercises - 75 13,002 - - - 13,077
Cash dividends, $0.12 per share - - - (4,664) - - (4,664)
-------- ----- ------ ------ ---- ------ ------
Balance at August 31, 1998 $ 107 3,847 35,840 46,109 (3,079) (2,173) 80,651
Net income - - - 7,573 - - 7,573
Foreign currency translation - - - - 534 - 534
------
Total comprehensive income 8,107
Exercise of stock options and
tax benefit of stock option - 19 5,339 - - - 5,358
Cash dividends, $0.12 per share - - - (4,712) - - (4,712)
-------- ----- ------ ------ ---- ------ ------
Balance at August 31, 1999 $ 107 $ 3,866 $ 41,179 $ 48,970 $ (2,545) $ (2,173) $ 89,404
======== ======== ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Merger with Monsanto Company
On May 8, 1998, Delta and Pine Land Company ("DPLC") entered into a Merger
Agreement with Monsanto Company ("Monsanto"), pursuant to which DPLC would be
merged with and into Monsanto. This agreement has been approved by DPLC's
stockholders, but is still subject to the expiration of the waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976. Under terms of the
agreement, upon consummation of the merger DPLC's stockholders will be entitled
to receive 0.8625 shares of Monsanto's Common Stock in exchange for each share
of Delta and Pine Land Company stock they hold. At a Special Shareholders
Meeting held on November 30, 1998, the shareholders approved the Merger
Agreement and Plan of Merger. The Merger Agreement originally had an expiration
date of June 30, 1999. However, DPLC could extend the period of time in which to
complete the merger until December 31, 1999 or under certain circumstances to
June 30, 2000. On May 21, 1999, DPLC and Monsanto agreed to extend the time for
completing the merger from June 30, 1999 until December 31, 1999, with an option
for DPLC to extend this deadline to June 30, 2000.
In connection with the evaluation of various strategic alternatives including
the contemplated merger, DLPC, in 1998, incurred legal fees, investment banker
fees and other professional fees approximating $5.1 million, which are included
in "Special Charges and Unusual Charges Related to Acquisitions." In 1999, DPLC
incurred approximately $9.0 million in legal fees, other professional fees and
other costs related to the contemplated merger.
Nature of Operations
Delta and Pine Land Company and subsidiaries (the "Company" or "D&PL") breed,
produce, condition and market cotton and soybean planting seed. In connection
with its seed operations, the Company farms approximately 2,600 acres, largely
for the 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 quality standards upon harvest, the
Company may be obligated to purchase specified minimum quantities of seed at
prices equal to the commodity market price of the seed, plus a grower premium.
The Company then conditions the seed for sale as planting seed.
Basis of Presentation
The accompanying financial statements include the accounts of Delta and Pine
Land Company and its subsidiaries. Significant inter-company accounts and
transactions have been eliminated in consolidation.
Special Charges
In July 1999, D&PL announced a restructuring program aimed to improve operating
efficiencies by consolidating the Company's three domestic divisions into one.
The Company recorded a $2.0 million charge in its fourth quarter for the
severance and related costs associated with this plan, substantially all of
which were paid prior to August 31. This charge is included in "Special Charges
and Unusual Charges Related to Acquisitions" in the accompanying consolidated
statements of income as is $9.0 million in merger related costs. In 1999, the
Company wrote off inventory that was deemed to be excess or obsolete. The
portion of this inventory write off deemed to be in excess of normal levels
($15.2 million) is separately presented as a component of cost of sales. Other
income and expense includes a $3.7 million loss on the disposition of fixed
assets and other nonrecurring charges.
In 1998, the Company recorded special and nonrecurring charges of $22.6 million
that relate to additional inventory reserves and costs related to evaluation of
various strategic alternatives which culminated in the contemplated merger with
Monsanto. The level of inventory reserves and write-offs were a result of excess
inventory quantities resulting from a 7% reduction in acreage and the further
realignment of the Company's product line due to the introduction of new
products and changing demand. The costs related to the merger are primarily fees
for legal advice, investment bankers and other professionals.
In 1997, D&PL announced a production and cost optimization program aimed to
improve plant operating efficiencies. The Company recorded a $19.0 million
charge in its fourth quarter for the estimated costs associated with this plan,
of which $11.5 million was recorded as a component of "Cost of Sales" and $7.5
million was included in "Special Charges and Unusual Charges Related to
Acquisitions". This special charge included costs associated with the idling of
three plants, the write down of fixed assets, plant consolidation costs and
costs associated with the phase out of certain products.
In 1996, the Company commenced commercial sale of cottonseed containing
Monsanto's Bollgard gene and in 1997, the Company commenced commercial
cottonseed sales containing Monsanto's Roundup Ready gene. As a result of
inserting these genes into the Company's existing product line, the number of
stock keeping units increased significantly. In June 1997, the Company commenced
a review and evaluation of the Company's product line and of the efficiency of
its cottonseed delinting facilities to determine what steps could be taken to
reduce overhead and production costs by reorganizing and/or consolidating the
Company's seed processing into a fewer number of plants. Management determined
that a reduction in the number of existing varieties and a reduction of the
expected growth rate of those under development for planned future commercial
launch would be necessary so the number of processing plants could similarly be
reduced. Therefore, management elected to (i) discontinue offering certain
products that were previously expected to be offered for sale for the next
several years, (ii) accelerate the planned discontinuance of other products and
(iii) reduce the number and rate of introduction of certain new varieties.
Separately, in connection with the Sure Grow Seed acquisition in 1996, three
additional delinting facilities were added to the overall capacity of the
Company. The decision to reduce the overall stock keeping units further
decreased the volume of production at the three plants being closed; decreased
their efficiency; and increased the cost of inventory produced at these
facilities. In June of 1997, management and the Board of Directors adopted a
formal plan of reorganization, and determined that certain products would be
phased out over an anticipated period of three years and three delinting
facilities would be closed immediately. Based on estimated future inventory
levels needed by the Company, management established reserves for certain excess
and obsolete varieties, reduced certain varieties to net realizable value due to
inefficient operations and excess capacity discussed above, bought out certain
grower contracts for varieties being phased out, wrote down the value of excess
facilities in accordance with SFAS 121 and recorded a charge for employees
affected by the closing of the excess facilities.
For the year ended August 31, 1997, the components of the production and cost
optimization program consisted of the following items and amounts (in
thousands):
Cost of Sales Operating Expenses
------------- ------------------
Write-down of delinting facilities $ - $4,500
Plant consolidation costs, including severance - 2,500
Idling of Scott, Mississippi, Tunica, Mississippi and
Centre, Alabama Plants - 500
Contract cancellation costs due to reduction of varieties 3,000 -
Write down existing inventory to net realizable value 4,500 -
Reserve for expected discontinuance of varieties 4,000 -
------- -------
$11,500 $7,500
======= =======
In connection with the 1996 acquisitions of the Sure Grow Companies and Hartz
Cotton, Inc., the Company recorded charges anticipated to be nonrecurring of
approximately $1.7 million for transaction costs in 1997 all of which were paid
prior to August 31, 1997. These costs primarily include professional fees
(including costs related to the U.S. Department of Justice review of the Sure
Grow acquisition) and are included in "Special Charges and Unusual Charges
Related to Acquisitions" in the accompanying Consolidated Statements of Income.
At August 31, 1999, no liabilities related to the above items remain on the
balance sheet.
Cash Equivalents
Cash equivalents include overnight repurchase agreements and other short-term
investments having an original maturity of less than three months.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and amortization
are provided for financial reporting purposes using the straight-line method
over the estimated useful lives of the assets. Accelerated methods are used for
income tax purposes. The estimated useful lives of the various classes of
property, in years, are as follows:
Land improvements 5-20
Buildings and improvements 10-35
Machinery and equipment 3-15
Germplasm 10-15
Breeder and foundation seed 40
The germplasm, breeder and foundation seed was purchased as part of the
Paymaster and Hartz acquisitions and includes amounts for specifically
identified varieties and for breeding stocks. The amounts associated with
specific varieties are amortized over the expected commercial life of those
varieties. Breeding stocks are amortized over 40 years, since they can be
revitalized from time to time and remain viable indefinitely after such
revitalization.
Intangible Assets and Deferred Charges
Intangible assets consist of trademarks, patents and other intangible assets and
are being amortized using the straight-line method over 5 to 40 years. Excess of
cost over net assets of businesses acquired are being amortized using the
straight-line method over 40 years. Organization costs for foreign ventures are
amortized over five years.
Foreign Currency Translation
Financial statements of foreign operations where the local currency is the
functional currency are translated using exchange rates in effect at period end
for assets and liabilities and average exchange rates during the period for
results of operations. Financial statements of foreign entities in
highly-inflationary economies are translated as though the functional currency
is the United States currency. Translation adjustments are reported as a
separate component of stockholders' equity. Gains and losses from foreign
currency transactions are included in earnings.
Income Taxes
The Company uses the liability method of accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates and laws.
Fair Value of Financial Instruments
The fair value of the Company's financial instruments at August 31, 1999
approximates their carrying value.
Revenue Recognition
Domestic revenues from the sale of planting seed, less estimated reserves for
returns, are recognized when the seed is shipped. International revenues are
recognized upon the later of either when the seed is shipped or when letters of
credit are cleared. Revenues from farm operations are recognized at the time
crops are harvested and sold. Costs incurred in producing crops are included as
inventory until these two events occur. Revenues from commercialization
agreements and royalties are recognized when earned and are included in net
sales and licensing fees. Revenues from Bollgard and Roundup Ready licensing
fees (net of estimated distributor and dealer commissions) are recognized based
on the number of acres expected to be planted with such seed when the seed is
shipped and are recorded as sales. Royalties due to licensors of technology are
recorded as cost of sales.
Research and Development
All research and development costs incurred to breed and produce experimental
seed are expensed. Costs incurred to produce sufficient quantities of planting
seed needed for commercialization are carried as inventory until such seed is
sold. Cotton lint and other by-products of seed production are also carried as
inventory until sold.
Derivative Financial Instruments
The Company uses futures and option contracts for its soybean hedging program to
effectively fix the cost of a significant portion of its soybeans. These
contracts are accounted for on a settlement basis, with the net amounts paid or
received under such contracts included in the cost of soybeans. Open futures
contracts and the underlying soybean inventory are marked to market. The Company
does not typically terminate contracts prior to their expiration. The amount of
deferred losses associated with the soybean hedging program at August 31, 1999
was not material. The Company does not speculate in derivatives.
Impairment of Assets
D&PL assesses recoverability and impairment of intangible assets and other
long-lived assets whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. D&PL determines if the unamortized
balance can be recovered through projected future operating cash flows. If the
sum of the expected future cash flows is less than the carrying amount of the
asset, an impairment loss is recognized in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". Otherwise, an impairment loss is not recognized, and D&PL
continues to amortize its intangible assets and other assets based on the
remaining estimated useful life.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 1999
presentation.
Implementation of Financial Accounting Standards
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income," during the first quarter of 1999. This
statement requires that foreign currency translation be included in other
comprehensive income and that the accumulated balance of other comprehensive
income be separately presented. Prior year information has been restated to
conform to the requirements of the statement.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
establishes accounting and reporting standards for the derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The effective date of this statement was delayed via the
issuance of SFAS No. 137. The effective date for SFAS No. 133 is now for fiscal
years beginning after June 15, 2000, although earlier adoption is encouraged and
retroactive application is prohibited. D&PL must adopt this statement no later
than September 1, 2000. Management does not expect the adoption of this standard
to have a material impact on D&PL's results of operations, financial position or
cash flows.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants released SOP 98-5 requiring that
start-up activities be expensed as incurred. SOP 98-5 is effective for fiscal
years beginning after December 31, 1998. The Company will adopt this SOP
beginning fiscal year 2000. At August 31, 1999, D&PL had costs aggregating
approximately $1,000,000 recorded as startup or organizational costs related
primarily to its foreign joint ventures.
2. INVENTORIES
Inventories at August 31, consisted of the following:
1998 1999
---- ----
Finished goods $ 45,121,000 $ 43,528,000
Raw materials 14,036,000 15,774,000
Growing crops 586,000 1,564,000
Supplies 676,000 969,000
------- -------
60,419,000 61,835,000
Less reserves (9,922,000) (14,108,000)
---------- -----------
$ 50,497,000 $ 47,727,000
============ ==============
Substantially all finished goods and raw material inventory is valued at the
lower of average cost or market. Growing crops and supplies are recorded at
cost.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at August 31, consisted of the following:
1998 1999
---- ----
Land and improvements $ 4,437,000 $ 4,113,000
Buildings and improvements 35,849,000 35,251,000
Machinery and equipment 38,530,000 43,291,000
Germplasm 7,500,000 7,500,000
Breeder and foundation seed 2,000,000 2,000,000
Construction in progress 5,650,000 4,789,000
93,966,000 96,944,000
Less accumulated depreciation (27,126,000) (31,778,000)
----------- -----------
$66,840,000 $65,166,000
=========== ===========
4. NOTES PAYABLE AND LONG-TERM DEBT
The Company has a syndicated credit facility with three financial institutions
which provides for aggregate unsecured borrowings of $110 million comprised of a
base commitment of $55 million and a seasonal commitment of $55 million. The
base commitment is a long-term loan that may be borrowed upon at any time and is
due April 1, 2001. The seasonal commitment is a working capital loan that may be
drawn upon from September 1 through June 30 of each fiscal year and expires
April 1, 2001. Each commitment offers variable and fixed interest rate options
and requires the Company to pay facility or commitment fees and to comply with
certain financial covenants. At August 31, 1999, the Company had $38.0 million
available for borrowing under the base commitment. In addition, the lead lender
has approved a $25.0 million credit line that can be activated by the Company as
needed. On April 15, 1999, the Company activated the previously approved $25.0
million additional seasonal credit facility. Such facility was available from
April 15, 1999 to September 1, 1999 and incurred interest at rates comparable to
the existing facility.
The interest rate charged for each loan is based on LIBOR plus 35 to 55 basis
points depending on the achievement of certain financial ratios. The combined
average interest rate was 6.0% and 5.6% during 1998 and 1999, respectively.
The financial covenants require the Company to: (a) maintain a ratio of total
liabilities to tangible net worth at August 31, of less than or equal to 2.25 to
1 (4.0 to 1.0 at the Company's fiscal quarter ends) (b) maintain a fixed charge
ratio at the end of each quarter greater than or equal to 2.0 to 1.0 and (c)
maintain at all times tangible net worth of not less than the sum of (i) $40
million , plus (ii) 50% of net income (but not losses) determined as of the last
day of each fiscal year, commencing with August 31, 1998. At August 31, 1999,
the Company's ratio of total liabilities to tangible net worth was 2.6 to 1.0,
which exceeds the permitted ratio. The lenders waived compliance with this
covenant.
5. ACCRUED EXPENSES
Accrued expenses at August 31, consisted of the following:
1998 1999
---- ----
Sales returns and allowances $ 8,996,000 $ 8,627,000
Payroll 2,067,000 2,883,000
Bollgard and Roundup Ready
royalties and related expenses
due Monsanto 68,754,000 115,260,000
Other accrued expenses 11,746,000 13,379,000
---------- ----------
$ 91,563,000 $ 140,149,000
============ =============
6. INCOME TAXES
The provisions for income taxes for the years ended August 31, consisted of the
following:
1997 1998 1999
---- ---- ----
Current-
Federal $2,622,000 $ 970,000 $ 9,628,000
State 65,000 39,000 858,000
Deferred 79,000 298,000 (7,059,000)
------ ------- ----------
$2,766,000 $1,307,000 $ 3,427,000
========== ========== ============
The differences between the statutory Federal income tax rate and the effective
rate are as follows:
1997 1998 1999
---- ---- ----
Statutory rate 35.0% 35.0% 35.0%
Increases (decreases) in tax resulting from:
State taxes, net of Federal tax benefit 2.0 2.2 2.3
Research and development tax credits (3.4) (19.3) (8.6)
Tax effects resulting from non deductible costs
and foreign activities (2.2) 20.3 (1.2)
Other (2.8) 2.8 3.7
---- --- ---
Effective rate 28.6% 41.0% 31.2%
==== ==== ====
The components of deferred income taxes at August 31, are as follows:
Deferred tax assets:
1998 1999
---- ----
Inventory $ 4,259,000 $ 9,226,000
Charitable contributions 270,000 368,000
Intangibles 312,000 192,000
Other 149,000 4,083,000
------- ---------
4,990,000 13,869,000
========= ==========
Deferred tax liabilities:
Deferred charges (532,000) (908,000)
Property (4,735,000) (5,228,000)
Other (335,000) (641,000)
-------- --------
(5,602,000) (6,777,000)
---------- ----------
Net deferred income taxes $ (612,000) $ 7,092,000
=========== ============
To date the Company's foreign subsidiaries and joint ventures either have not
generated taxable income, or have been granted tax holidays and, for these
reasons, no taxes are provided for foreign operations.
7. LEASES
The Company leases real estate and machinery and equipment used in its
operations. Substantially all rent expense is recorded as cost of sales. The
Company has no capital leases. Future minimum rental payments after 1999 under
operating leases with initial or remaining noncancellable terms in excess of one
year are as follows:
2000 $192,000
2001 $135,000
2002 $ 67,000
2003 $ 31,000
2004 $ -
Rent and lease expense including land rent approximated $2,265,000, $3,101,000
and $3,182,000 in 1997, 1998 and 1999, respectively.
8. EMPLOYEE BENEFIT PLANS
Defined Benefit Plan -
Substantially all full-time employees are covered by a noncontributory defined
benefit plan (the "Plan"). Benefits are paid to employees, or their
beneficiaries, upon retirement, death or disability based on their final average
compensation over the highest consecutive five years. Plan assets consist
primarily of U.S. government securities and common stock and are managed by an
independent portfolio manager. The Company's funding policy is to make
contributions to the Plan that are at least equal to the minimum amounts
required to be funded in accordance with the provisions of ERISA.
Effective January 15, 1992, the Company adopted a Supplemental Executive
Retirement Plan (the "SERP"), which will pay supplemental pension benefits to
certain employees whose benefits from the Plan were decreased as a result of
certain changes made to the Plan. The benefits from the SERP will be paid in
addition to any benefits the participants may receive under the Plan and will be
paid from Company assets, not Plan assets.
The Company has adopted SFAS No. 132, "Employers' Disclosures About Pensions and
Other Postretirement Benefits," which changes the presentation of information
about pension and other postretirement benefit plans. Disclosures for prior
years have been restated. The measurement of Plan and SERP assets and
obligations was performed as of June 30. The following table provides a
reconciliation of the changes in the Plan's and SERP's benefit obligations and
fair value of assets over the two-year period ended August 31, 1999, and a
statement of the funded status as of August 31, 1998 and 1999.
Plan SERP
-------------------- --------------------
1998 1999 1998 1999
---- ---- ---- ----
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 6,741,000 $ 9,489,000 $ 516,000 $ 588,000
Service cost 444,000 481,000 47,000 39,000
Interest cost 584,000 687,000 38,000 43,000
Actuarial loss 2,411,000 395,000 18,000 10,000
Curtailments, settlements, (171,000) -- -- --
Benefits paid (520,000) (665,000) (31,000) (37,000)
-------- -------- ------- -------
Benefit obligation at end of year $ 9,489,000 $ 10,387,000 $ 588,000 $ 643,000
============ ============ ============ ============
Plan SERP
-------------------- --------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of $ 8,102,000 $ 9,646,000 $ 239,000 $ 500,000
Actual return on plan assets 2,135,000 1,614,000 18,000 98,000
Company contributions -- 700,000 275,000 85,000
Benefits paid (520,000) (665,000) (31,000) (36,000)
Expenses (71,000) (82,000) (1,000) (6,000)
------- ------- ------ ------
Fair value of plan assets at end of year $ 9,646,000 $ 11,213,000 $ 500,000 $ 641,000
============ ============ ============ ============
FUNDED STATUS
Funded status beginning of year $ 157,000 $ 827,000 $ (88,000) $ (3,000)
-- -- -- --
------- ------- ------ -----
Contribution after measurement date $ 157,000 $ 827,000 $ (88,000) $ (3,000)
Funded status end of year ============ ============ ============ ============
Plan SERP
---------------------------------- -----------------------------------
1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ----
Service cost 337,000 444,000 481,000 44,000 47,000 39,000
Interest cost on projected benefit 424,000 584,000 687,000 34,000 38,000 43,000
Actual return on (1,458,000) (2,135,000) (1,613,000) (13,000) (18,000) (98,000)
Amortization of transitional 119,000 118,000 119,000 -- -- --
Net unrecognized loss and 827,000 1,334,000 712,000 (5,000) 2,000 75,000
------- --------- ------- ------ ----- ------
Net periodic pension expense 249,000 345,000 386,000 60,000 69,000 59,000
======= ======= ======= ====== ====== ======
Company contributions $ - $ - $ 700,000 $ - $ 275,000 $ 85,000
======= ======== ======== ======= =========== ==========
The actuarial present value of the projected benefit obligation of the Plan and
the SERP was determined using a discount rate of 7.5% in 1998 and 1999, with
assumed salary increases of 4% in 1998 and 1999. The expected long-term rate of
return on assets was 9% in 1998 and 1999. Prior service cost is amortized over
15 years.
Defined Contribution Plan -
D&PL sponsors a defined contribution plan under Section 401(k) of the Internal
Revenue Code which covers substantially all full-time employees of the Company.
The Company, at its option, may elect to make matching contributions to the
Plan. No matching contributions were made in 1997, 1998 or 1999.
9. MAJOR CUSTOMERS
In fiscal 1997, 1998, and 1999 seed sales to each of three customers and the
related licensing fees ultimately billed to the farmers by these customers for
transgenic products comprised more than 10% of total sales and licensing fees.
The approximate amount of annual sales including technology fees to each of the
customers were as follows:
Customer 1997 1998 1999
-------- ---- ---- ----
A $27,100,000 $23,800,000 $34,615,000
B 26,200,000 27,388,000 50,767,000
C 31,800,000 44,054,000 74,710,000
10. BUSINESS SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," effective August 31, 1999. The Statement establishes
standards for reporting information about operating segments. Operating
segments, as defined, are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision-maker in allocating resources and assessing performance. The
Company is in a single line of business and operates in two business segments,
domestic and international. The Company's reportable segments offer similar
products; however, the business units are managed separately due to the
geographic dispersion of their operations. D&PL breeds, produces, delints and
conditions, and markets proprietary varieties of cotton planting seed in the
United States. D&PL also breeds, produces, conditions and distributes soybean
planting seed in the United States. The international segment offers similar
cottonseed in several foreign countries. The Company develops its proprietary
seed products through research and development efforts throughout the United
States and certain foreign countries. Additionally, the Company utilizes the
same methods for the production and distribution of domestic cotton seed for
stripper and picker varieties. The Company's chief operating decision maker
utilizes revenue information in assessing performance and making overall
operating decisions and resource allocations. Profit and loss information is
reported by segment to the chief operating decision maker and the Company's
Board of Directors. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies.
Domestic sales approximated $233,949,000, $170,569,000, and $168,349,000 in
1999, 1998 and 1997, respectively. International sales approximated $26,516,000,
$21,770,000 and $14,900,000 in 1999, 1998 and 1997, respectively. International
sales includes shipments that either originate in or are destined to locations
outside the United States. Operating income/(losses) in 1999, 1998 and 1997,
respectively were approximately $19,856,000, $9,228,000, and $13,459,000 for the
domestic segment and ($2,082,000), ($2,960,000) and ($2,039,000) for the
international segment.
Domestic long-lived assets approximated $67,565,000 and $62,187,000 in 1998 and
1999, respectively. International long-lived assets approximated $9,724,000 and
$16,028,000 in 1998 and 1999, respectively. Long-lived assets include property,
plant and equipment, goodwill and other long-term assets. Capital expenditures
in 1999, 1998 and 1997, respectively, were $3,824,000, and $5,305,000 and
$15,427,000 for the domestic segment and $4,269,000, $4,937,000 and $1,027,000
for the international segment.
11. RELATED PARTY TRANSACTIONS
A partner of a law firm that represents the Company is also a stockholder and
serves as corporate secretary. The Company paid legal fees to that firm of
approximately $645,000, $715,000 and $740,000 in 1997, 1998 and 1999,
respectively.
During 1997, 1998 and 1999 the Institute of Molecular Agrobiology ("IMA"), which
is owned by the National University of Singapore and the National Science and
Technology Board of Singapore, conducted contract research upon the Company's
instruction related to the development of certain technologies for varietal
crops such as cotton and soybeans. The Company paid approximately $350,000,
$260,000 and $340,000 in 1997, 1998 and 1999, respectively, for such research
projects.
Dr. Chua, a member of the Board of Directors of the Company, is the Chairman of
the Management Board of Directors of IMA and is also Chairman of the Board of an
affiliate of IMA, IMAGEN. IMAGEN, together with Singapore Bio-Innovations Pte.
Ltd., STIC Investments Pte. Ltd., and OCBC Wearnes and Walden Investments Pte.
Ltd., own 20% of the stock of D&PL China Pte. Ltd.
In 1999, the Company sold at a loss of approximately $1.1 million its site at
Centre, Alabama to an entity that is controlled by an officer who is also a
shareholder. This shareholder was an officer and shareholder of the Sure Grow
Companies at the time of their acquisition by D&PL.
12. COMMITMENTS AND CONTINGENCIES
On October 14, 1999, the Company, Monsanto and UAP/GA Ag. Chem. Inc. were named
as defendants in two lawsuits filed by two cotton farmers in the United States
District Court for the Western District of North Carolina. The suits allege,
among other things, that certain varieties sold by the Company that contain the
Roundup Ready gene, performed poorly, specifically including lack of tolerance
to Roundup and poor germination. The Company and Monsanto have investigated the
claims to determine the cause or causes of the alleged problems. Pursuant to the
terms of the Roundup Ready Agreement between D&PL and Monsanto, D&PL has
tendered the defense of these claims to Monsanto and requested indemnify.
Pursuant to the Roundup Ready Agreement, Monsanto is contractually obligated to
defend and indemnity the Company against all claims arising out of the failure
of the Roundup glyphosate tolerance gene. D&PL will not have a right to
indemnification from Monsanto, however, for any claim involving defective
varietal characteristics separate from or in addition to the failure of the
herbicide tolerance gene, and such claims are contained in these complaints.
D&PL believes these claims will be resolved without any material impact on the
Company's consolidated financial statements.
On June 11, 1999, D&PL, Monsanto, Asgrow Seed Company, SF Services, Terral Seed,
Inc., Valley Farmers Co-Op, Red River Co-Op, and Central Louisiana Grain Co-Op
were named as defendants in a lawsuit filed in the Fourth Judicial District,
Parish of Natchitoches, State of Louisiana. The suit alleges, among other
things, that certain soybean seeds which contain the Roundup Ready(R) gene did
not perform as advertised and did not produce promised yields. The plaintiffs in
this case are seeking certification of a class of all purchasers of Roundup
Ready soybeans during the years of 1997 and 1998. The Company and Monsanto are
presently investigating the claim; however, they believe it to be without merit
and their plan is to vigorously defend this lawsuit. Pursuant to the terms of
the Roundup Ready Soybean Agreement between D&PL and Monsanto, D&PL has tendered
the defense of this claim to Monsanto. Pursuant to the Roundup Ready Soybean
Agreement, Monsanto is contractually obligated to defend and indemnify any and
all claims arising out of the failure of glyphosate gene tolerance, and certain
other types of claims. D&PL will have no right to indemnification from Monsanto,
however, for any claim involving defects in seed and/or promotional
representations made solely by D&PL without Monsanto's approval. Such claims
appear to be contained within this complaint. D&PL believes this claim will be
resolved without any material impact on the Company's consolidated financial
statements.
The Company and Monsanto are named as defendants in four pending lawsuits filed
in the State of Texas. Two lawsuits were filed in Lamb County, Texas on April 5,
1999; one lawsuit was filed in Lamb County, Texas on April 14, 1999; and one
lawsuit was filed in Hockley County, Texas, on April 21, 1999. These lawsuits
were removed to the United States District Court, Lubbock Division, but
subsequently were remanded back to the state court where they were filed. In
each case the plaintiff alleges, among other things, that certain cottonseed
acquired from Paymaster which contained the Roundup Ready gene did not perform
as the farmers had anticipated. These lawsuits also include varietal claims
aimed solely at the Company. This litigation is identical to seed arbitration
claims previously filed in the State of Texas which were concluded in the
Company's favor. The Company and Monsanto have investigated the claims to
determine the cause or causes of the alleged problems. Pursuant to the terms of
the Roundup Ready Agreement between D&PL and Monsanto, D&PL has tendered the
defense of these claims to Monsanto and requested indemnity. Pursuant to the
Roundup Ready Agreement, Monsanto is contractually obligated to defend and
indemnify the Company against all claims arising out of the failure of the
Roundup glyphosate tolerance gene. D&PL will not have a right to indemnification
from Monsanto, however, for any claim involving defective varietal
characteristics separate from or in addition to the failure of the herbicide
tolerance gene, and such claims are contained in these complaints. D&PL believes
these claims will be resolved without any material impact on the Company's
consolidated financial statements.
The Company, Monsanto and other parties were named as defendants in a lawsuit
filed in the Superior Court of Calhoun County, Georgia on April 19, 1999, which
has been removed to the United States District Court of the Middle District of
Georgia, Albany Division. The Company and Monsanto are presently investigating
the claim to determine the cause or causes, if any, of the alleged problems.
Pursuant to the terms of the Roundup Ready Agreement between D&PL and Monsanto,
D&PL has tendered the defense of this claim to Monsanto and requested indemnity,
as Monsanto is contractually obligated to defend and indemnify the Company
against all claims arising out of the failure of the Roundup glyphosate
tolerance gene. D&PL will not have a right to indemnification from Monsanto,
however, for any claim involving defects in seed separate from or in addition to
the failure of the herbicide tolerance gene, and such claims are contained in
these complaints. This case was the subject of a seed arbitration case filed in
Georgia during 1997 which was concluded in the Company's favor.
The Company and Monsanto were named as defendants in a lawsuit filed in the
Circuit Court of the State of Missouri, County of Dunklin, on April 2, 1999.
This case was subsequently removed to the United States District Court for the
Eastern District of Missouri, but remanded back to the Circuit Court of the
State of Missouri, County of Dunklin. This suit alleges that certain varieties
of cotton offered for sale by D&PL were unmerchantable as a result of the
alleged susceptibility to a malady referred to as bronze wilt. Although this
litigation involves a transgenic variety, there is no allegation in the
complaint sufficient to trigger any contractual obligation to defend or
indemnify under the terms of the Roundup Ready Agreement. A settlement of this
claim has been agreed to (but not yet consummated). This settlement is reflected
in the Company's consolidated financial statements at August 31, 1999.
On March 30, 1999, the Company, Asgrow Seed Company, L.L.C., and Terra
International were named as defendants in a lawsuit filed in the Fourth Judicial
District Court, Parish of Morehouse, State of Louisiana, which has now been
removed to the United States District Court for the Western District of
Louisiana. The suit alleges, among other things, that certain soybean seed which
contained the Roundup Ready gene did not properly germinate and did not perform
as the farmer had anticipated and, in particular, did not fully protect their
crops from damage following the application of Roundup. The Company and Monsanto
are presently investigating the claim to determine the cause or causes, if any,
of the alleged problem. Pursuant to the terms of the Roundup Ready Agreement
between D&PL and Monsanto, D&PL has tendered the defense of this claim to
Monsanto. Pursuant to the Roundup Ready Agreement, Monsanto is contractually
obligated to defend and indemnify any and all claims arising out of the failure
of the glyphosate gene tolerance. D&PL believes this case can be resolved
without any material impact on the Company's consolidated financial statements.
In 1999 and 1998 45 farmers in Mississippi filed seed arbitration claims against
the Company and Monsanto with the Mississippi Department of Agriculture arising
from the 1998 cotton crop. The Mississippi Department of Agriculture dismissed
all but 19 of those claims due to the failure of the farmer to provide adequate
information. Those farmers, however, still have a right to pursue litigation
should they so choose. The remaining arbitration claims were heard in March of
1999. The Company was exonerated from liability in 16 of those cases. Three
cases resulted in the suggestion of nominal damages. Each of those farmers has,
likewise, the right to pursue litigation should they so choose. Five of the 16
unsuccessful claimants from the 1998 crop year filed suit on May 21, 1999, in
the Circuit Court of Bolivar County, Mississippi, against the Company and
Monsanto. The Company and Monsanto are presently investigating the claims.
Pursuant to the terms of the Roundup Ready Agreement between D&PL and Monsanto,
D&PL has tendered the defense of these claims to Monsanto and requested
indemnity, as Monsanto is contractually obligated to defend and indemnify the
Company against all claims arising out of the failure of the Roundup glyphosate
tolerance gene. D&PL will not have a right to indemnification from Monsanto,
however, for any claim involving defects in seed separate from or in addition to
the failure of the herbicide tolerance gene, and such claims are contained in
these complaints. D&PL believes this lawsuit will be resolved without any
material impact on the Company's consolidated financial statements.
Additionally, one farmer in Mississippi has filed a seed arbitration claim
against the Company with the Mississippi Department of Agriculture arising from
the 1999 cotton crop. The Mississippi Department of Agriculture has not yet
scheduled a hearing on this claim. D&PL believes this claim can be resolved
without any material impact on the Company's consolidated financial statements .
In 1999 and 1998 approximately 210 cotton farmers in Georgia had filed seed
arbitration claims arising from the 1998 cotton crop against the Company, and in
some cases, Monsanto. Approximately 180 of those cases have now been settled.
Those settlements were achieved without any material impact on the Company's
consolidated financial statements. The remaining claimants who had filed for the
1998 crop year still have the right to pursue litigation if they so choose. The
Company believes that these claims can be resolved without any material impact
on the Company's consolidated financial statements.
In 1999, approximately 31 cotton farmers in Georgia have filed seed arbitration
claims against the Company and, in some cases, Monsanto, alleging damages for
their 1999 crop. Six of these claims have been scheduled for hearing, four on
January 11, 2000, and two on January 20, 2000. The Company and Monsanto are in
the process of investigating these claims to determine the cause or causes, if
any, of the alleged problems. Pursuant to the terms of the Roundup Ready
Agreement between D&PL and Monsanto, D&PL has tendered the defense of these seed
arbitration claims to Monsanto and has requested indemnity. Pursuant to the
Roundup Ready Agreement, Monsanto is contractually obligated to defend and
indemnify the Company against all claims arising out of the failure of the
Roundup glyphosate tolerance gene. D&PL will not have a right to
indemnification, however, for any claim involving defects in the seed, separate
from or in addition to the failure of the herbicide tolerance gene, and such
claims are contained in some of the seed arbitration claims filed. Based upon
information received to date, D&PL believes these claims can be resolved without
any material impact on the Company's consolidated financial statements.
In 1998, one claim was filed with the Arkansas Seed Arbitration Council. A
Motion to Dismiss has been filed. This case alleges that certain Roundup Ready
cottonseed marketed by the Company in 1997 failed to perform as farmers had
anticipated and caused the farmers to suffer crop loss. Pursuant to the Roundup
Ready Agreement between D&PL and Monsanto, D&PL has tendered the defense of this
claim to Monsanto. Pursuant to the Roundup Ready Agreement, Monsanto is
contractually obligated to defend and indemnify any and all claims arising out
of the failure of the glyphosate gene tolerance. D&PL believes this case can be
resolved without any material impact on the Company's consolidated financial
statements.
In 1999 and 1998, three farmers in the State of Florida had filed arbitration
claims against the Company. Two of those claims have now been resolved. A
hearing was conducted on the remaining claim on October 12, 1999; however, no
ruling has yet been received. D&PL believes this claim will be resolved without
any material impact on the Company's consolidated financial statements.
The Company, certain subsidiaries of Monsanto and others were named as
defendants in a lawsuit filed in the Civil District Court, Williamson County,
Texas, 277th Judicial District, in April 1997. The plaintiffs allege, among
other things, that certain cottonseed acquired from Monsanto in the Hartz Cotton
acquisition and subsequently sold by the Company, failed to perform as
represented allegedly resulting in lost yield. Pursuant to the Hartz Cotton
acquisition agreement, the Company is entitled to indemnification from Monsanto
for damages resulting from the sale of bagged seed inventories acquired by D&PL
in that acquisition. Some or all of the seed involved in this case may meet this
criteria and D&PL will therefore be entitled to indemnification from Monsanto
for any losses resulting from such seed. In October 1999, this case was
dismissed and the parties to this litigation, including the Company and
Monsanto, agreed to mediate the claims which were the subject of this lawsuit.
Should mediation fail, the parties have agreed to enter into binding
arbitration. Management believes this case will be resolved without any material
impact on the Company's consolidated financial statements.
The Company, Monsanto and other third parties were named as defendants in
lawsuits filed (i) in the District Court of Falls County, Texas, in August 1996
and (ii) in the District Court of Robertson County, Texas, in March 1998. The
plaintiffs allege, among other things, that D&PL's cottonseed varieties, which
contain Monsanto's Bollgard gene, did not perform as the farmers had anticipated
and, in particular, did not fully protect their cotton crops from certain
lepidopteran insects. On or about October 8, 1999, a settlement of the Falls
County case was agreed upon, but it has not yet been consummated. The settlement
on such terms would not have any material impact on the Company's consolidated
financial statements.
In May 1998, five individual alleged shareholders brought suits against
Monsanto, the Company and its Board of Directors ("Directors") in the Court of
Chancery in New Castle County, Delaware. The complaints alleged that the
consideration to be paid in the proposed merger of the Company with Monsanto is
inadequate and that the Company's Directors breached their fiduciary duties to
the Company's stockholders by voting to approve the Agreement and Plan of
Merger, and that Monsanto aided and abetted the alleged breach of fiduciary
duty. The complaints were consolidated into one action, which sought a
declaration that the action was maintainable as a class action, that the merger
be enjoined, or alternatively, rescinded, and/or an award of unspecified
compensatory damages if the merger was consummated. A settlement agreement was
reached with the named plaintiffs in November 1998. The parties intend to apply
to the Court for a date for a hearing on approval of the settlement which, if
approved, will not have a material effect on the Company's consolidated
financial statements.
In October 1996, Mycogen Plant Science, Inc. and Agrigenetics, Inc.
(collectively "Mycogen") filed a lawsuit in U.S. District Court in Delaware
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
making, selling, and licensing seed that contains the Bollgard gene. The suit,
which went to trial in January 1998, sought injunctions against alleged
infringement, compensatory damages, treble damages and attorney's fees and court
costs. A jury found in favor of D&PL and Monsanto on issues of infringement.
Mycogen subsequently re-filed a motion for a new trial and for a judgment in
favor of Mycogen as a matter of law. The trial court has ruled in these motions
holding for Mycogen on certain issues but sustaining the jury verdict in favor
of D&PL and Monsanto. Mycogen has appealed to the U.S. Court of Appeals for the
Federal Circuit. Pursuant to the terms of the Bollgard Agreement, Monsanto is
required to defend D&PL against patent infringement claims and indemnify D&PL
against damages from any patent infringement claims and certain other losses and
costs. Due to Monsanto's obligation to indemnify D&PL, the Company believes that
the resolution of this matter will not have a material impact on the Company's
consolidated 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 $700,000 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's
consolidated financial statements. The Company continues to offer seed for sale
in Guatemala.
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. (which own the outstanding common stock of
Sure Grow Seed, Inc). The CID states that the USDOJ is investigating whether
these transactions may have violated the provisions of Section 7 of the Clayton
Act, 15 USC 18. D&PL has responded to the CID, employees were examined in 1997
by the USDOJ, and D&PL is committed to full cooperation with the USDOJ. At the
present time, the ultimate outcome of the investigation cannot be predicted.
On August 9, 1999, D&PL and Monsanto received Civil Investigative Demands from
the USDOJ, seeking to determine whether there have been any inappropriate
exchanges of information between Monsanto and D&PL or if any prior acquisitions
are likely to have substantially lessened competition in the sale or development
of cottonseed or cottonseed genetic traits. D&PL is complying with the USDOJ's
request for information and documents and with the recent Civil Investigative
Demand.
13. MERGERS AND ACQUISITIONS
Merger with Monsanto Company
On May 8, 1998, DPLC entered into a merger agreement with Monsanto, pursuant to
which DPLC would be merged with and into Monsanto. This agreement has been
approved by DPLC's stockholders, but is still subject to the expiration of the
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Under the terms of the agreement, upon consummation of the merger DPLC's
stockholders will be entitled to receive 0.8625 shares of Monsanto's Common
Stock in exchange for each share of Delta and Pine Land Company stock they hold.
At a Special Shareholders Meeting held on November 30, 1998, the shareholders
approved the Merger Agreement and Plan of Merger. The Merger Agreement
originally had an expiration date of June 30, 1999. However, DPLC could extend
the period of time in which to complete the merger until December 31, 1999 or
under certain circumstances to June 30, 2000. On May 21, 1999, DPLC and Monsanto
agreed to extend the time for completing the merger from June 30, 1999 until
December 31, 1999, with an option for DPLC to extend this deadline to June 30,
2000.
The merger of DPLC with and into Monsanto is subject to review by the USDOJ
under the Hart-Scott-Rodino Anti-Trust Improvements Act of 1976 ("H-S-R Act").
On June 18, 1998, Monsanto and D&PL announced that they have received requests
for additional information and other documentary materials from the USDOJ under
the H-S-R Act concerning Monsanto's previously announced acquisition of DPLC.
This request extends the waiting period under the H-S-R Act during which the
parties are prohibited from closing the transaction. On August 9, 1999, D&PL and
Monsanto received Civil Investigative Demands from the USDOJ, seeking to
determine whether there have been any inappropriate exchanges of information
between Monsanto and D&PL or if any prior acquisitions are likely to have
substantially lessened competition in the sale or development of cottonseed or
cottonseed genetic traits. D&PL is complying with the USDOJ's request for
information and documents and with the recent CID.
Pursuant to the Merger Agreement, DLPC has agreed that, during the period from
the date of the signing of the Merger Agreement (May 8, 1998) through the merger
closing date (except as otherwise expressly permitted by the terms of the Merger
Agreement), it will, and it will cause its respective subsidiaries to, in all
material respects, (i) carry on its business in the ordinary course, (ii) use
reasonable best efforts to preserve intact its current business organization,
(iii) keep available the services of its current officers and employees, and
(iv) preserve its relationships with customers, suppliers and others.
In addition, DPLC has agreed that neither DPLC nor, where applicable, its
subsidiaries, without Monsanto's prior written consent or as otherwise permitted
under the Merger Agreement, will: (a) amend its certificate of incorporation or
bylaws; (b) split, combine or reclassify its outstanding capital stock or
declare, set aside or pay any dividend payable in cash, stock or property with
respect to the same, provided that DPLC may declare and pay regular quarterly
dividends of not more than $0.03 per share; (c) issue or agree to issue any
additional shares of, or rights to acquire shares of, capital stock other than
the issuance of shares of capital stock of a subsidiary to DPLC or, with respect
to DLPC shares issuable upon exercise of outstanding options pursuant to the
D&PL 1993 Stock Option Plan and the 1995 D&PL Long-Term Incentive Plan
(collectively, the "D&PL Option Plans"); (d) enter into or agree to enter into
any new or amended contract or agreement with any labor unions; (e) authorize,
recommend, propose or announce an intention to authorize, recommend or propose,
or enter into an agreement in principle or an agreement with respect to any
merger, consolidation or business combination (other than the merger with
Monsanto), or any acquisition or disposition of a material amount of assets or
securities (other than inventory in the ordinary course of business); (f) enter
into or amend any employment, severance or change-in-control agreement, or
benefit plan except as required by law or regulations, or as expressly provided
by the Merger Agreement, or in the ordinary course of business; (g) (i) except
in the ordinary course of business, create, incur or assume any debt other than
under existing or approved lines of credit or to fund out-of-pocket costs
incurred in connection with the transactions contemplated by the Merger
Agreement, (ii) assume, guarantee, endorse or otherwise become liable or
responsible for the obligations of any other person except majority owned
subsidiaries of DPLC in the ordinary course of business or (iii) make any loans,
advances or capital contributions, or investments in, any other person other
than a majority-owned subsidiary; (h) amend the 1996 DPLC Shareholder Rights
Plan ("Rights Plan") or redeem any of the rights granted under the Rights Plan,
or (i) take any action that it is prohibited from taking under the Merger
Agreement or that would constitute or is likely to cause a breach of any
covenant, agreement, or representation set forth in the Merger Agreement.
Other Transactions
In February 1996, the Company acquired Hartz Cotton, Inc. from Monsanto, which
included cotton planting seed inventories, germplasm, breeding stocks,
trademarks, trade names and other assets, for approximately $6.0 million. The
consideration consisted primarily of 1,066,667 shares of DPLC's Series M
Convertible Non-Voting Preferred Stock.
14. STOCKHOLDERS' EQUITY
Preferred Stock
The Board of Directors of DPLC is authorized, subject to certain limitations
prescribed by law and the Monsanto Merger Agreement, without further stockholder
approval, to issue up to an aggregate of 2,000,000 shares of Preferred Stock, in
one or more series, and to determine or alter the designations, preferences,
rights and any qualifications, limitations or restrictions on the shares of each
such series thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series.
In August 1996, the Board of Directors adopted a Stockholder Rights Plan
("Rights Plan") and declared a dividend of one preferred stock purchase right
("right") for each outstanding share of DPLC's Common Stock. Similar rights have
been, and generally will be, issued in respect of Common Stock subsequently
issued. Each right becomes exercisable, upon the occurrence of certain events,
for one one-hundredth of a share of Series A Junior Participating Preferred
Stock, $0.10 par value, at a purchase price of $175 per one one-hundredth of a
Preferred Share, subject to adjustment. In the event that DPLC is acquired in a
merger or other business combination transaction not approved by the Board of
Directors, each holder of a right shall have the right to receive that number of
shares of common stock of the surviving company which would have a market value
of two times the exercise price of the right. The Board of Directors has
unanimously approved the Monsanto merger and modified the Rights Plan to
deactivate it for such merger. Under the Rights Plan, 429,319 shares of Series A
Junior Participating Preferred Stock have been reserved. The rights currently
are not exercisable and will be exercisable only if a person or group acquires
beneficial ownership of 15% or more of DPLC's outstanding shares of Common
Stock. The rights, which expire on August 30, 2006, are redeemable in whole, but
not in part, at DPLC's option at any time for a price of $0.01 per right. In May
1998 and July 1998, the Rights Plan was amended to facilitate the Monsanto
merger.
DLPC issued 1,066,667 shares (after effect of stock splits) of Series M
Convertible Non-voting Preferred Stock, as consideration for the purchase in
1996 of Hartz Cotton, Inc. from Monsanto. The holders of Series M Preferred
Stock are entitled to receive dividends at the same rate per share as is paid
from time to time on each share of the Common Stock of DPLC, and no more, when
and as declared by the Board of Directors. In the event of any liquidation,
dissolution or winding up of DPLC, either voluntary or involuntary, the holders
of Series M Preferred Stock shall be entitled to receive, prior to and in
preference to any distribution to holders of Common Stock or any other class of
security of DLPC, $10.452 per share of Series M Preferred Stock. The Series M
Preferred Stock is convertible beginning upon the seventh anniversary of the
date on which the Series M Preferred Stock was issued or the occurrence of other
specified events, whichever occurs first.
Stock Option Plans
The 1993 Stock Option Plan authorized options to purchase up to 2,560,000 shares
(after effect of all stock splits) of Common Stock at an option price not less
than the market price on the date of grant.
The 1995 Long-Term Incentive Plan (the "LTIP") allows for the awarding of stock
options, stock appreciation rights, restricted shares of Common Stock and
performance units to officers, key employees and directors. Under the LTIP,
2,560,000 shares (after effect of stock splits through November 1997) of Common
Stock of DPLC were available for grant. Shares subject to options and awards
which expire unexercised are available for new option grants and awards. Future
members of the Board of Directors receive automatic grants of 62,222 shares upon
being named to the Board. On February 27, 1997, stockholders amended this plan
to provide additional annual grants of 2,666 shares for each of the next five
years (1997 - 2001) to present directors of the Company. Such options are
exercisable ratably over five years commencing after one year from the date of
grant.
Stock Options Number of Shares Price Range
- ------------- ---------------- -----------
Outstanding at August 31, 1996 2,277,243 $ 4.67 - $ 15.70
Granted 1,412,217 $ 15.61 - $ 28.90
Exercised (160,548) $ 4.67 - $ 15.70
Lapsed or canceled (72,533) $ 4.67 - $ 22.36
------- ------ -------
Outstanding at August 31, 1997 3,456,379 $ 4.67 - $ 28.90
Granted 722,994 $ 26.82 - $ 49.31
Exercised (745,749) $ 4.67 - $ 22.85
Lapsed or canceled (113,157) $ 4.67 - $ 28.90
-------- ------ -------
Outstanding at August 31, 1998 3,320,467 $ 4.67 - $ 49.31
Granted 70,996 $ 32.80 - $ 37.80
Exercised (194,948) $ 4.67 - $ 26.82
Lapsed or canceled (53,558) $ 10.69 - $ 41.97
------- ------- -------
Outstanding at August 31, 1999 3,142,957 $ 4.67 - $ 49.31
========= ====== =======
D&PL adopted SFAS No. 123, "Accounting for Stock-Based Compensation", which
requires companies to estimate the fair value of stock options on date of grant.
This pronouncement requires D&PL to record the estimated fair value of stock
options issued as compensation expense in its income statements over the related
service periods or, alternatively, continue to apply accounting methodologies as
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and disclose the pro forma effects of the
estimated fair value of stock options issued in the accompanying footnotes to
its financial statements. In adopting this pronouncement, D&PL elected to
continue to follow the accounting methodologies as prescribed by APB Opinion No.
25. The determination of fair value is only required for stock options issued
beginning in fiscal 1996. The weighted average fair values of options granted in
fiscal 1997, 1998 and 1999 were $11.08, $15.91 and $19.24 per share,
respectively.
The pro forma effects of the total compensation expense that would have been
recognized under SFAS No. 123 are as follows:
August 31,
(Dollars in thousands, except per share data) 1997 1998 1999
--------------------------------------------- ---- ---- ----
Net income, as reported $6,850 $1,783 $7,477
Pro forma net income (loss) $4,792 ($1,303) $3,942
Basic earnings per share, as reported $0.18 $0.05 $0.19
Pro forma basic earnings (loss) per share $0.13 ($0.03) $0.10
Diluted earnings (loss) per share, as reported $0.17 $0.04 $0.19
Pro forma diluted earnings (loss) per share $0.12 ($0.03) $0.10
D&PL utilized the Black-Scholes Option Pricing Model to estimate the fair value
of stock options granted using the following assumptions:
1997 1998 1999
---- ---- --------
Expected dividend yield 3% 3% 3%
Expected option lives 5 years 5 years 5 years
Expected volatility 47.0% to 48.7% 48.7% to 54.4% 64.41%
Risk-free interest rates 6.15% to 6.9% 5.34% to 5.89% 6.29%
The following table summarizes certain information about stock options granted,
exercised and forfeited for the three year period ended August 31, 1999:
Options Granted net Weighted Average
of Exercises and Remaining Contractual Life Weighted Average
Exercise Price Range Forfeitures in Years Exercise Price
- -------------------- ----------- -------- --------------
$15.61 - $18.98 220,953 7.35 $ 16.82
$21.21 - $28.90 1,469,240 7.58 $ 24.30
$32.80 - $49.31 158,992 8.73 $ 43.09
Common Stock
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. In October 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 the par value per share, distributed
on November 20, 1997 to the stockholders of record on November 10, 1997. All
stock splits described above have been reflected in the accompanying
consolidated financial statements.
Treasury Stock
In April 1997, the Board of Directors authorized a stock repurchase plan of up
to 10% of DPLC's outstanding common stock. At August 31, 1997 and 1998, DPLC had
purchased 114,266 shares with an aggregate purchase price of $2,173,000. In
connection with the Monsanto merger, the Board of Directors formally terminated
this plan in May 1998.
Earnings Per Share
The table below reconciles basic and diluted earnings per share at August 31:
Basic: 1997 1998 1999
- ------ ---- ---- ----
Net income $ 6,913 $ 1,879 $ 7,573
Preferred stock dividends (63) (96) (96)
--- --- ---
Net income applicable to common stockholders $ 6,850 $ 1,783 $ 7,477
========== ========== =========
Weighted average shares outstanding 37,579 38,011 38,438
====== ====== ======
Basic earnings per share $ 0.18 $ 0.05 $ 0.19
========== ========== =========
Diluted:
Net income applicable to common stockholders $ 6,850 $ 1,783 $ 7,477
Preferred stock dividends 63 96 96
-- -- --
Net income $ 6,913 $ 1,879 $ 7,573
========== ========== =========
Weighted shares outstanding 37,579 38,011 38,438
Common stock equivalents 1,484 1,762 1,469
Weighted average common stock issuable
upon conversion of Preferred stock 1,066 1,066 1,066
----- ----- -----
Diluted shares outstanding 40,129 40,839 40,973
====== ====== ======
Diluted earnings per share $ 0.17 $ 0.05 $ 0.18
========== ========== =========
15. UNAUDITED QUARTERLY FINANCIAL DATA
All of D&PL's domestic seed products are subject to return or credits, which
vary from year to year. The annual level of returns and ultimately net sales and
net income are influenced by various factors, principally weather conditions
occurring in the spring planting season (spanning the Company's third and fourth
fiscal quarters). The Company provides for estimated returns as sales are made.
To the extent actual returns 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. Generally, international sales are not subject to return.
Substantially all Company sales are concentrated in the second and third fiscal
quarters. As a result, the Company generally incurs losses in the first and
fourth quarters. Management believes that such seasonality is common throughout
the seed industry.
Summarized unaudited quarterly financial data is as follows:
(In thousands, except per share data)
- ---------------------------------------------------------------------------------------------------------------------------
Fiscal 1997: Three months ended
November 30 February 28 May 31 August 31
- ---------------------------------------------------------------------------------------------------------------------------
Net sales and licensing fees(2) $ 6,317 $ 66,425 $ 116,425 $ (5,918)
Gross profit(3) 1,188 25,325 42,721 (13,774)
Net income (loss) applicable to
common shares(3) (4,381) 9,299 20,544 (18,612)
Net income (loss) per share-basic(1 )(3) (0.12) 0.24 0.53 (0.50)
Weighted average number of shares used
in quarterly per share calculations -basic 37,573 38,949 38,815 37,573
Net income (loss) per share-diluted(1)(3) (0.12) 0.23 0.51 (0.50)
Weighted average number of shares used
in quarterly per share calculations-diluted 37,573 40,094 40,255 37,573
- ---------------------------------------------------------------------------------------------------------------------------
Fiscal 1998: Three months ended
November 30 February 28 May 31 August 31
- ---------------------------------------------------------------------------------------------------------------------------
Net sales and licensing fees(2) $ 5,340 $77,245 $126,029 $(16,275)
Gross profit(4) 2,067 27,147 40,018 (15,666)
Net income (loss) applicable to
common shares(4) (4,665) 9,757 13,941 (17,250)
Net income (loss) per share-basic(1)(4) (0.12) 0.26 0.36 (0.45)
Weighted average number of shares used
in quarterly per share calculations -basic 37,721 37,858 38,133 38,367
Net income (loss) per share- diluted(1)(4) (0.12) 0.24 0.34 (0.45)
Weighted average number of shares used
in quarterly per share calculations- diluted 37,721 40,663 41,594 38,367
- ---------------------------------------------------------------------------------------------------------------------------
Fiscal 1999: Three months ended
November 30 February 28 May 31 August 31
- ------------------------------------------------------------------------------------------------------------------------------
Net sales and licensing fees 7,195 $72,800 $ 158,591 $ 21,879
Gross profit(5) 2,248 23,116 51,378 (1,591)
Net income (loss) applicable to
common shares(5) (6,463) 2,382 20,724 (9,166)
Net income (loss) per share-basic(1)(5) (0.17) 0.06 0.54 (0.24)
Weighted average number of shares used
in quarterly per share calculations -basic 38,380 38,422 38,454 38,513
Net income (loss) per share- diluted(1)(5) (0.17) 0.06 0.51 (0.24)
Weighted average number of shares used
in quarterly per share calculations- diluted 38,380 41,085 41,017 38,513
(1)Thesum of the quarterly net income (loss) per share amounts may not
equal the annual amount reported since per share amounts are computed
independently for each quarter, whereas annual earnings per share are
based on the annual weighted average shares deemed outstanding during
the year.
(2)Seed returns were higher in the fourth quarter than the level of
returns anticipated at the end of the third quarter. A change in the
accounting estimate for these returns was recorded in the fourth
quarter. The new provision for returns was greater than the amount of
sales recorded in the fourth quarter, and as a result, reported net
sales in the fourth quarter were negative.
(3)The fourth quarter includes the effect of recording a $19.0 million
special charge of which $11.5 million is recorded as Cost of Sales and
$7.5 million is recorded in operating expenses related to the
production and cost optimization program.
(4)The fourth quarter includes the effect of recording a $17.5 million
special charge in cost of sales associated with inventory write -offs
and recalled inventory and $5.1 million in operating expense for the
effects of the evaluation of various strategic alternatives and the
Monsanto merger.
(5) The fourth quarter includes the effect of recording special
charges of $20.3 million of which $15.2 million is recorded as cost of
sales and is associated with inventory write-offs due to product phase
outs and reserves established for excess inventory, $3.1 million in
operating expenses related to the merger and approximately $2.0
million in other income associated with loss on sale of fixed assets.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
OFFICERS OF THE COMPANY
Offices Held with Company;
Name (Age) (1) Position Principal Occupation for Past Five Years
- -------------- ---------------------- --------------------------------------------------------
Roger D. Malkin Chairman and Chief Mr. Malkin has served as Chairman and Chief
(68) Executive Officer Executive Officer of D&PL since 1978. Also, he
served as Chairman of Southwide, Inc.("Southwide"),
a Delaware corporation, and the former parent of D&PL, from 1971 through its
liquidation in 1993.
Steven M. Hawkins President and Chief Mr. Hawkins has served as President and Chief
(49) Operating Officer Operating Officer since December 1998. Before that time, he served
as Executive Vice President of D&PL from May 1998 until December 1998.
From September 1996 until May 1998, he served as Director of Marketing
and Vice President of Sales and Marketing for Deltapine Seed.
Prior to joining D&PL, he worked for Asgrow Seed Company from October 1976
until September 1996. His last assignment with Asgrow was as Director
of Marketing, Logistics and New Business. Prior to that
he held various marketing, sales and operation positions with the Company.
Charles R. Dismuke, Jr. Senior Vice President- Mr. Dismuke has served as Senior Vice
(44) Operations, Quality President of Operations, Quality Assurance and
Assurance and Information Systems since August 1999. From
Information Systems January 1997 until August 1999, he served as Senior Vice
President and as President of DeltaPine Seed Division. From October 1989
until January 1997, he served as Vice President - Operations. Mr.
Dismuke was a General Manager of one of the Company's subsidiaries, Greenfiled
Seed Company, from 1982 until 1989. Mr. Dismuke has been
employed by D&PL or one of its subsidiaries since June 1977.
Thomas O. Luehder Senior Vice President - Mr. Luehder has served as Senior Vice President
(58) International of International Division since February 1998. From April 1997 until February
1998 he was Senior Vice President in the International Division. He joined
D&PL in May 1994 and was the Chief Representative of D&PL China Pte. Ltd.
Prior to joining D&PL, he served as President of Jacques
Seed Company, Prescott, Wisconsin.
Harry B. Collins Vice President - Dr. Collins has served as Vice President-Technology
(58) Technology Transfer since April, 1998. Prior to that, Dr. Collins served as the Transfer
Company's Vice President - Research from 1995 to April 1998.
Earl E. Dykes Vice President - Mr. Dykes has served as Vice President - Operations
(46) Operations since February 1997 until present. Prior to that time,
Mr. Dykes served as the General Manager - Arizona Processing, Inc.
(which was acquired by the Company in May 1996 as the result of the Sure
Grow merger). Mr. Dykes was a shareholder of Arizona Processing, Inc. at the
time of acquisition.
W.A. Ellis, III Vice President- Mr. Ellis has served as Vice President-Sales
(46) Sales and Marketing and Marketing since August 1999. From January 1997 until August 1999, he
served as Senior Vice President and as President - SureGrow Seed Division.
From 1990 until 1996 he served as President - Ellis Brothers Seed, Inc.
and Sure Grow Seed, Inc (which were acquired by the Company in May 1996
as the result of the Sure Grow merger). Before that time Mr. Ellis was
Vice President of Ellis Brothers Seed, Inc.
William V. Hugie Vice President- Dr. Hugie has served as Vice President - New
(40) New Technologies Research since September 1996. From August 1994
Research until September 1996, he served as a Project Leader of the Transgenic
Cotton Breeding Program, and from December 1988 until August 1994, he
served as a Project Leader of the Sorghum Breeding Program. Prior to
joining the Company, Dr. Hugie was employed by Funk Seed International from
1986 to 1988.
W. Thomas Jagodinski Vice President - Mr. Jagodinski has served as Vice President -
(43) Finance and Finance and Treasurer since February 1993, and Treasurer and
Treasurer and Chief Financial Officer from May 1992 to February 1993. From October 1991 to
Assistant Secretary May 1992, Mr. Jagodinski served as Director of Corporate Accounting, Financial
Reporting and Income Taxes. Prior to joining the Company, Mr.
Jagodinski was employed by Arthur Andersen LLP in various capacities since 1983
Thomas A. Kerby Vice President - Dr. Kerby has served as Vice President-Technical
(55) Technical Services Services since September 1994, and Director-Technical Services from
November 1993, when he joined D&PL, until 1994. Prior to joining the
Company, Dr. Kerby served the cotton industry of California and the
University of California as Extension Cotton Agronomist from 1981 through
October 1993.
Donald L. Kimmel Vice President - Mr. Kimmel has served as Vice President-Marketing
(61) Marketing of D&PL since 1986, and from 1985 to 1986, as its Marketing Manager.
Charles V. Michell Vice President - Mr. Michell has served as Vice President -
(37) Information Systems Information Systems since October 1998, until
present and prior to that time, as Corporate Director - Information Systems and
Telecommunications, since March 1995. He joined the company in 1987 as Manager
of Information Systems. Prior to joining the Company, Mr. Michell was Manager
of Computer Operations at St. Dominic Jackson Memorial Hospital and he was
self-employed as an Information Technology Consultant in the hospital,
banking and custom welding industries.
Alan L. Rubida Vice President - Mr. Rubida has served as Vice President - Quality
(38) Quality Assurance Assurance since October 1998. Mr. Rubida joined D&PL in 1994 and served as the
Company's Western Cottonseed Production Manager until his promotion in 1998.
Prior to joining D&PL, Mr. Rubida served as manager of the Cottonseed
Production Department for the Supima Association of America.
Ann J. Shackelford Vice President- Ms. Shackelford has served as Vice President -
(41) Corporate Services Corporate Services since September 1997 and, until that time, as Director -
New Business Product Development since January 1997. From October 1994
until December 1996, she served as Legal Coordinator. Prior to joining
the Company, Ms. Shackelford was involved in private business.
James H. Willeke Vice President- Mr. Willeke has served as Vice President-Sales and
(55) Sales and Marketing Marketing since August 1999. From January 1997 until August 1999, he served
as Senior Vice President and as President - Paymaster Division. From 1987
until 1996, he served as President-Hartz Seed in Stuttgart, Arkansas, a
subsidiary of Monsanto. From 1982 to 1987, he directed Lynks in
Marshalltown, IA, a subsidiary of Mycogen Seeds, as General Manager.
Jerome C. Hafter Secretary Mr. Hafter has served as Secretary of D&PL since
(54) July 1993, and he served as Assistant Secretary from April 1990 until July
1993. Since 1976, Mr. Hafter has been a partner in Lake Tindall
LLP, D&PL's general counsel; and he has performed legal services for D&PL since
1983.
- ---------------------
(1) As of August 31, 1999
DIRECTORS OF THE COMPANY
Offices Held with Company;
Name(1) Principal Occupation
(Year First Elected a Director) for Past Five Years
- ------------------------------- -------------------
Roger D. Malkin (1978) (See the description of Mr. Malkin's offices with the Company and principal occupation on
Page 60 , under "Officers of the Company".)
Nam-Hai Chua (1993) Dr. Chua has acted as a consultant to D&PL since April 1991. Dr. Chua is the Andrew W.
Mellon Professor and Head of the Plant Molecular Biology Laboratory of Rockefeller
University, New York, New York, and has been with the University for over 20 years.
Also, he is member of the Board of Directors of BioInnovations of America, an entity
owned by the Government of Singapore, which invests in United States biotechnology
companies. Dr. Chua was also a member of the Board of Directors of DNAP Holdings
(formerly DNA Plant Technology Corporation), whose stock trades on NASDAQ until he
resigned in 1998. In addition, Dr. Chua serves as the Chairman of the Management Board
of Directors of the Institute of Molecular Agrobiology ("IMA") and as the Chairman of the
Board of IMAGEN Holdings Pte. Ltd, an affiliate of IMA. Dr. Chua also acted as a
scientific consultant to Monsanto Company for matters relating to plant biology through
1995. Dr. Chua is 55 years of age.
Jon E.M. Jacoby (1992) Mr. Jacoby has been employed by Stephens, Inc. and Stephens Group, Inc., companies that
engage in investment banking activities since 1963, and is presently a director and
officer for each of these companies. Stephens Inc. and Stephens Group, Inc. are
stockholders of D&PL. Mr. Jacoby is a director of Beverly Enterprises, Inc., Medicus
Systems Corp. and Power-One, Inc. He was a director of American Classic Voyages Co. until
he resigned on June 30, 1997. Mr. Jacoby is 61 years of age.
Joseph M. Murphy (1992) Since 1987 and February 1993, respectively, Mr. Murphy has been the Chairman of Value
Investors, Inc., a closely-held real estate investment company, and the Chairman of
Country Bank, White Plains, New York. Mr. Murphy is 64 years of age.
Stanley P. Roth (1988) Mr. Roth controls and is the Chairman of NACC, a private merchant banking firm, and has
been its President since 1976. Since 1988, Mr. Roth has served as the Chairman of
Royal-Pioneer Industries, Inc., and a director of Hollis Corporation. Mr. Roth became
the Vice Chairman of CPG International, Inc. in 1990, and the Chairman of GPC
International, Inc., its successor corporation, in 1994. Mr. Roth is 62 years of age.
Rudi E. Scheidt (1993) Since 1990, Mr. Scheidt has been a private investor. From 1973 to 1989, he served as
President of Hohenberg Bros. Co., a worldwide cotton merchant, headquartered in Memphis,
Tennessee, and as its Chairman during 1990. Mr. Scheidt is a Director Emeritus of
National Commerce Bancorporation, a bank holding company, headquartered in Memphis,
Tennessee. Mr. Scheidt is 74 years of age.
- ---------------------
(1) As of August 31, 1999
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on review of the copies of reporting forms furnished to the
Company, or written representations that no forms were required, the Company
believes that during 1999, all required events of its officers, directors and
10% stockholders to the Securities and Exchange Commission of their ownership
and changes in ownership of Shares (as required pursuant to Section 16(a) of the
Securities Exchange Act of 1934) have been filed, except that the following
individuals filed the following number of late reports with respect to the
following number of transactions: One Form 4 each for Mssrs. Hugie and Kimmel
relating to an option exercise, one for Mr. Ellis relating to stock gifts, and
one each for Mssrs. Malkin, Chua, Jacoby, Murphy, Roth, and Scheidt relating to
stock option grants.
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
Annual Compensation
The following table sets forth certain information regarding compensation paid
to, or accrued for, the Company's Chief Executive Officer and the Company's four
other most highly-compensated executive officers (the "Named Officers") during
the year ended August 31:
SUMMARY COMPENSATION TABLE
Long-Term
Name and Compensation All Other
Principal Position Annual Compensation Awards Compensation
- ------------------ ------------------- ------ ------------
Securities
Underlying
Year Salary($) Bonus($) Options (1)
---- --------- -------- ----------------------
Roger D. Malkin 1999 290,000 487,228(5) 2,666(2) $ 30,000(4)
Chief Executive Officer 1998 290,000 - 2,666(2) 35,000(4)
and Chairman of the 1997 290,000 220,000 62,222(3) 29,000(4)
Board
Steven M. Hawkins 1999 218,000 150,000 - -
President and COO 1998 163,000 - 130,000 -
1997 140,000 40,000 53,000 -
W. Thomas Jagodinski 1999 162,500 75,000 - -
Vice President - Finance 1998 150,000 - - -
and Treasurer 1997 140,000 75,000 79,999 -
Thomas O. Luehder 1999 165,000 51,000 - -
Senior Vice President 1998 150,000 25,000 30,000 -
1997 150,000 22,500 8,889 -
Charles R. Dismuke, Jr. 1999 170,000 45,000 - -
Senior Vice President 1998 165,000 - - -
1997 160,000 50,000 24,889 -
(1) All stock options reflected on a post-split basis.
(2) Include options for 2,666 shares granted by formula to Mr. Malkin in his
capacity as a director of the Company, concurrently with identical grants
to all directors of the Company.
(3) Includes options for 8,889 shares granted to Mr. Malkin in his capacity as
a director of the Company, concurrently with identical grants to all
directors of the Company. (4) Director's and attendance fees for serving as
a director of the Company. (5) Consists of cash bonus of $250,000 and the
transfer by the Company to Mr. Malkin of certain real property with a fair
market value of $237,000.
Option Grants in Last Fiscal Year
The only options exercisable into securities of the Company are those
outstanding under the 1993 Stock Option Plan adopted in April 1993 (the "1993
Plan") and the 1995 Long-term Incentive Plan (the "LTIP"). The 1993 Plan was
fully exhausted in 1996. The Company granted options for 70,996 Shares under the
LTIP in 1999. All options granted under both plans vest 20% per annum commencing
on the first day of the second and each succeeding year following each grant and
expire ten years from the date of grant. Pursuant to the terms of both plans all
options granted and approved for grant before May 8, 1998, the date of the
Monsanto merger agreement, and outstanding at the merger closing date will
become fully vested due to the acceleration thereof because of a change in
control.
The following table sets forth certain information concerning stock options
granted during 1999:
OPTION GRANTS IN FISCAL 1999
Individual Grants
-------------------------------------------------------------------
Percentage of Potential Realized Value at
Number of Total Options Assumed Annual Rates of Stock
Securities Granted to Price Appreciation
Underlying Employees in Exercise Expiration for Option Term (1)
Name(2) Options Fiscal Year Price Date 0% 5% 10%
- ------- ------- ----------- ----- ---- -- -- ---
Roger D. Malkin 2,666 3.76% 32.80 2/25/09 - 55,000 139,000
- -----------------------------
(1) The dollar amount under these columns are the result of calculations at 5%
and 10% rates arbitrarily set by the Securities and Exchange Commission,
and therefore, are not intended to forecast possible future appreciation,
if any, of the Company's stock price. Any actual gain on exercise of
options is dependent on the future performance of the Company's stock.
(2) No other Named Officers were granted options in 1999.
Options Exercised in Last Fiscal Year
The following table sets forth certain information concerning stock option
exercises during 1999 and unexercised options held as of August 31, 1999 for
each of the Named Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR -END OPTION VALUES
Number of Securities Underlying Value of Unexercised
Unexercised Options In-The-Money
Shares Gain FY-End Options FY-End (1)
Acquired on Realized on # # $ $
Exercise Exercise Exercisable Unexercisable Exercisable Unexercisable
-------- -------- ----------- ------------- ----------- -------------
Roger D. Malkin(2)(3) - - 130,310 42,132 2,843,982 228,359
Steven M. Hawkins(3) - - 47,333 136,000 288,893 493,040
W. Thomas Jagodinski - - 56,534 55,111 722,494 229,593
Thomas O. Luehder(3) - - 30,889 29,333 519,344 31,747
Charles R. Dismuke,Jr. - - 73,956 22,045 1,508,167 214,207
- ------------------
(1) Based on $28.3125 per share, the August 31, 1999 closing value as quoted by
the New York Stock Exchange.
(2) According to the terms of Mr. Malkin's options, all of his options would be
fully exercisable upon his retirement because he is over 65 years of age.
(3) Computation excludes 5,332 shares for Mr. Malkin, 50,000 shares for Mr.
Hawkins, and 30,000 shares for Mr. Luehder, that are "out-of-the-money."
Employment Contracts and Change-In-Control Arrangements
Mr. Jagodinski is employed pursuant to an employment agreement effective
September 1, 1997 which provided for an annual base salary of $150,000 subject
to upward adjustment plus bonus, the amount of which is determined in accordance
with the bonus program described herein, plus insurance and other fringe
benefits. The agreement is automatically extended each day so that at any given
date, the time remaining under the contract will be for an additional two year
period. The contract may be terminated, except as a result of a change in
control or in anticipation of a change in control, upon three months written
notice. The employment agreement includes provisions pursuant to which Mr.
Jagodinski will receive, in the event of the termination of his employment due
to a change in control or in anticipation of a change in control, an amount that
in effect is equal to two times his highest salary and bonus paid during any of
the previous five calendar years; plus a continuation for 24 months of his
insurance and fringe benefits. Mr. Jagodinski's agreement provides him the right
to surrender his stock options to the Company and receive cash in lieu of stock,
plus provides for certain tax protection payments on a portion of amounts paid
to him under this plan. In addition, Mr. Jagodinski was granted an option for
53,333 shares of common stock at $28.04 per share excercisable ratably or upon a
change in control. Pursuant to the terms of this agreement, Mr. Jagodinski shall
not compete with the Company for one year upon his termination in the event of a
change in control.
COMPENSATION PURSUANT TO PLANS
Pension Plan
The Company maintains a noncontributory defined benefit plan (the "Pension
Plan") that covers substantially all full-time employees, including the Named
Officers. All employees of the Company and its domestic subsidiaries, who have
both attained age 21 and completed one year of eligibility service, are eligible
to participate in the Pension Plan. The Pension Plan provides a normal
retirement benefit (if employment terminates on or after age 65) equal to the
sum of: (i) 22.75% of the average compensation (the average of the participant's
five highest consecutive calendar years of earnings, including overtime but
excluding bonuses) reduced by 1/25th for each year of credited service less than
25 at normal retirement; and (ii) 22.75% of average compensation exceeding the
greater of one-half of average social security covered compensation and $10,000,
reduced by 1/35th for each year of credited service less than 35 at normal
retirement.
The following table shows the estimated benefits payable in the form of a
single-life annuity upon retirement in specified average compensation and years
of credited service classifications:
PENSION PLAN TABLE
Years of Credited Service
-------------------------
Compensation 15 20 25 30 35
- ------------ -- -- -- -- --
$ 25,000 $ 4,238 $ 5,651 $ 7,064 $ 7,339 $ 7,614
50,000 10,088 13,451 16,841 17,902 18,989
75,000 15,938 21,251 26,564 28,464 30,364
100,000 21,788 29,051 36,341 39,027 41,739
150,000 33,488 44,651 55,841 60,152 64,489
200,000 34,424 45,899 57,374 61,842 66,309
250,000 34,424 45,899 57,374 61,842 66,309
300,000 34,424 45,899 57,374 61,842 66,309
400,000 34,424 45,899 57,374 61,842 66,309
The above estimated annual benefits were calculated by the actuary for the
Pension Plan. Benefit amounts shown are the annual pension benefits payable in
the form of a single-life annuity for an individual attaining the age of 65 in
1999. In addition, such amounts reflect the 1999 maximum compensation limitation
under the Internal Revenue Code of 1986, as amended, and are not subject to any
deduction for social security or other amounts.
The estimated years of credited service and eligible average compensation for
each of the Named Officers as of January 1, 1999, the most recent Pension Plan
valuation date, are as follows:
Years of Average Plan
Name Credited Service Compensation
- ---- ---------------- ------------
Roger D. Malkin................................. 29 $154,000
Steven M. Hawkins............................... 1 153,750
W. Thomas Jagodinski........................... 7 128,282
Thomas O. Luehder............................... 5 152,500
Charles R. Dismuke.............................. 22 140,643
Supplemental Executive Retirement Plan
The Company adopted a Supplemental Executive Retirement Plan ("SERP"), which
became effective January 1, 1992, and covers certain management personnel,
including certain of the Named Officers. The SERP provides for payments to
participants in the form of a single-life annuity, or as otherwise provided by
the SERP commencing at age 65 or the participant's postponed retirement date.
The following table sets forth the scheduled estimated annual benefits expected
to be paid pursuant to the SERP to the Named Officers who are currently
participants:
Name(1) Annual Cash Benefit
Roger D. Malkin............................. $12,000
(1) Estimated annual benefits in the amount of $29,000 are also expected to be
paid pursuant to the SERP to F. Murray Robinson, a former officer of the
Company who retired April 15, 1999.
The SERP also provides that on the death of an active employee, the Company will
pay a death benefit to the participant's surviving spouse equal to the actuarial
equivalent of the participant's accrued benefit, which is based upon the
participant's years of service with the Company and the years of service the
participant would have had at age 65, if employment had continued. If a
participant's employment with the Company is terminated prior to age 65 for
reasons other than death, then the participant shall be paid a vested percentage
of his accrued benefit equal to the participant's annual cash benefit above
multiplied by a fraction (not greater than one), the numerator of which is the
participant's years of service as of the date of termination of employment and
the denominator of which is the participant's projected years of service as of
age 65, if employment had not terminated.
Each participant's vested percentage in the SERP is determined as follows:
Number of Years of Service Vested Percentage
1 but less than 2.................................... 20%
2 but less than 3.................................... 40%
3 but less than 4.................................... 60%
4 but less than 5.................................... 80%
5 or more............................................ 100%
Under the terms of the SERP, the Company may discontinue additional eligibility
and planned payments under the SERP at any time. The officer noted above is
fully vested in the SERP.
Defined Contribution Plan
Effective April 1, 1994, the Company established a defined contribution plan
pursuant to Internal Revenue Code Section 401(k) (the "401(k) Plan"). The 401(k)
Plan covers substantially all full-time employees. Eligible employees of the
Company and its domestic subsidiaries, who have both attained age 21 and
completed one year of service, may participate in the 401(k) Plan. A participant
may elect to contribute up to 18% of their eligible earnings to the 401(k) Plan.
The 401(k) Plan allows the Company to match a maximum of six percent of eligible
employee contributions. As of August 31, 1999, the Company has elected not to
match such contributions.
Incentive Plans
The Company maintains two incentive plans that compensate key employees and
directors through the grant of options to buy shares of Common Stock. In July
1993, the Company adopted the 1993 Stock Option Plan (the "1993 Plan") of which
the Compensation Committee of the Board of Directors have granted the maximum
number of shares permitted (2,560,000). On October 17, 1995, the Company's Board
of Directors adopted the 1995 Long-term Incentive Plan (the "LTIP") which the
shareholders ratified at the 1996 Annual Meeting. Pursuant to the LTIP, the
Board of Directors may award stock options, stock appreciation rights,
restricted shares of Common Stock and performance units to officers, key
employees and directors. Under the LTIP, 2,560,000 common shares were authorized
for grant.
As of August 31, 1999, options for 2,423,984 shares have been granted under the
LTIP.
Under both plans, all options for stock granted vest 20% per annum commencing on
the first day of the second and each succeeding year following each grant and
expire ten years from the date of grant. Shares subject to options and awards
under the LTIP which expire unexercised are available for new option grants and
awards. The number of shares available for grant under the 1993 Plan upon
forfeitures of options outstanding thereunder will be reduced to zero and the
granting of options thereunder has ceased.
Director's Compensation
Each Director receives an annual fee of $25,000 and participation fees of $1,000
for each meeting the Board of Directors attended. Directors are reimbursed for
actual expenses incurred in connection with attending Board or Committee
meetings. In addition, under the 1993 Stock Option Plan, as amended, each
present director was granted in June 1994, an option to purchase 53,333 shares
at the fair market price at the date of grant. Under the 1995 Long-Term
Incentive Plan, as amended, the initial option granted to each new director of
the Company was increased to 62,222 shares, and each new (and present) director
will be granted options for an additional 2,666 shares in each of the second
through sixth years each director serves as such (which began in February 1997
for present directors).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Share Ownership by Principal Stockholders and Management
To the best knowledge of the Company based on information filed with the
Securities and Exchange Commission and the Company's stock records, the
following table sets forth as of October 31, 1999, shares beneficially owned by
each director, each nominee for director, certain executive officers, any person
owning more than 5% of the Shares individually and by all officers and directors
as a group.
Shares Beneficially Owned
-------------------------
Amount of
Beneficial Percentage of
Name and Address of Beneficial Owner or Management Ownership Class
- -------------------------------------------------- --------- -----
G Industries Corporation (1) $5,632,002 14.6
John Hancock Mutual Life Insurance Company (2) 4,128,764 10.7
Stephens Group, Inc. (3) 2,589,137 6.7
Monsanto Company (4)(11) 1,777,776 4.6
Roger D. Malkin (5)(12) 1,165,614 3.0
Steven M. Hawkins (5) -- *
Joseph M. Murphy(6) 78,898 *
W. Thomas Jagodinski(5)(13) 70,211 *
Jon E.M. Jacoby (7) 47,825 *
Thomas O. Luehder (5) 5,000 *
Rudi E. Scheidt (8) 22,112 *
Charles R. Dismuke, Jr. (5) 82,666 *
Nam-Hai Chua (9) 45,505 *
Stanley P. Roth (10) 27,500 *
All Directors and Executive Officers as a Group $2,286,419 5.9
[20 persons] (14)(15)
- -----------------------
* Less than one percent
(1) The mailing address for G Industries, Corp. is: 300 Delaware Avenue,
Wilmington, Delaware 19801.
(2) The mailing address for John Hancock Mutual Life Insurance Company
("Hancock") is: John Hancock Place, 57th Floor, Boston, Massachusetts
02117.
(3) Mr. Jacoby, a director of Stephens Group, Inc., and its subsidiary,
Stephens, Inc. owns 147,825 Shares. See Note 7 below. The mailing address
for Stephens Group, Inc. and affiliates is: 111 Center Street, Little Rock,
Arkansas 72201.
(4) The mailing address for Monsanto Company is: 800 North Lindbergh Blvd., St.
Louis, Missouri 63167.
(5) The mailing address for Messrs. Malkin, Hawkins, Luehder, Jagodinski and
Dismuke is: One Cotton Row, Scott, Mississippi 38772.
(6) The Shares indicated are owned by Mr. Murphy's wife. Mr. Murphy disclaims
beneficial ownership of the 78,898 Shares owned by his wife. The mailing
address for Mr. Murphy is: 2687 North Ocean Boulevard, Boca Raton, Florida
33431.
(7) Includes: 113,637 Shares owned by Jacoby Enterprises, Inc., as to which Mr.
Jacoby has sole power to vote and sole power of disposition; 21,713 Shares
owned by Coral Partners in which Mr. Jacoby is a general partner, as to
which Mr. Jacoby has shared power to vote and shared power of disposition,
and 12,475 Shares owned beneficially by Mr. Jacoby. Does not include Shares
owned by Stephens Group, Inc., or other of its affiliates, except Jacoby
Enterprises, Inc., and Coral Partners. See Note 3 above. The mailing
address for Coral Partners, Jacoby Enterprises, Inc., and Mr. Jacoby is:
111 Center Street, Little Rock, Arkansas 72201.
(8) The mailing address for Mr. Scheidt is: 54 South White Station Road,
Memphis, Tennessee 38117.
(9) Includes: 10,666 Shares owned by Dr. Chua's wife and 34,839 Shares held
jointly by Dr. Chua's wife and daughter. Dr. Chua disclaims beneficial
ownership of these Shares. The mailing address for Dr. Chua is: c/o
Laboratory of Plant Molecular Biology, Rockefeller University, 1230 York
Avenue, New York, New York 10021-6399.
(10) Consists of 27,500 Shares owned by North American Capital Corporation
("NACC") as to which Mr. Roth has sole power to vote and sole power of
disposition. The mailing address for Mr. Roth is: 510 Broad Hollow Road,
Suite 206, Melville, New York 11747.
(11) Excludes shares obtained by conversion of Series M Convertible Preferred
Stock. If Monsanto converts pursuant to the terms of the Preferred Stock,
it would receive 1,066,667 Shares of Common Stock which would make its
amount of beneficial ownership 2,844,443 Shares, or 7.2 percent.
(12) The shares indicated include 340,371 Shares held by a family limited
partnership of which Mr. Malkin is the general partner and to which Mr.
Malkin disclaims beneficial ownership.
(13) The shares indicated include 3,555 Shares owned by Mr. Jagodinski's wife.
Mr. Jagodinski disclaims beneficial ownership of the shares owned by his
wife.
(14) Includes: 78,898 Shares owned by the wife of Joseph M. Murphy and 3,555
Shares owned by the wife of W. Thomas Jagodinski.
(15) As a group, the amount shown excludes vested and unvested options for
538,296 Shares pursuant to the 1993 Delta and Pine Land Company Stock
Option Plan ("1993 Plan") and options for 752,986 Shares pursuant to the
1995 Long-Term Incentive Plan ("LTIP"). For each individual listed above,
the amounts shown exclude exercisable options granted pursuant to the 1993
and LTIP Plan with respect to the following: Roger D. Malkin, 11,199
Shares; Steve M. Hawkins, 74,000 Shares; Joseph M. Murphy, 2,311 Shares; W.
Thomas Jagodinski, 65,422 Shares; Jon E. M. Jacoby, 57,422 Shares; Thomas
O. Luehder, 32,666 Shares; Rudi E. Scheidt, 57,422 Shares; Charles R.
Dismuke, 82,489 Shares; Nam-Hai Chua, 57,422 Shares; and Stanley P. Roth,
57,422 Shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
Consulting Agreement
The Company paid Nam-Hai Chua, a member of the Company's Board of Directors,
approximately $4,000 for consulting fees in 1998 associated with the Company's
effort to enter into joint ventures with parties in the People's Republic of
China. No such payments were made in 1999.
Dr. Chua is the Chairman of the Management Board of Directors of IMA and is also
Chairman of the Board of an affiliate of IMA, IMAGEN. IMAGEN, together with
Singapore Bio-Innovations Pte. Ltd., STIC Investments Pte. Ltd., and OCBC
Wearnes and Walden Investments Pte. Ltd., own 20% of the stock of D&PL China
Pte. Ltd.
During 1999 , the Institute of Molecular Agrobiology ("IMA"), which is owned by
the National University of Singapore and the National Science and Technology
Board of Singapore, conducted contract research upon the Company's instruction
related to the development of certain technologies for varietal crops such as
cotton and soybeans. The Company paid $340,000 in 1999 for such research
projects.
Registration Rights
Hancock has a one-time right to register, under the Act, shares owned by it on
June 28, 1993, less the number of shares sold by Hancock in the Company's
initial public offering. All of the expenses of such registration, except for
the cost of printing and Hancock's counsel, will be paid by the Company.
Hancock's registration rights are conditioned on Hancock providing the Company
with a legal opinion that its shares may not otherwise be publicly sold.
The holder of the convertible Series M Non-Voting Preferred Stock has certain
registration rights associated with the Common Stock into which the Preferred
Stock is convertible. The Preferred Stock is convertible into Common Stock
beginning upon the seventh anniversary of the date on which it was issued
(February 1996) or the occurrence of certain specified events, whichever occurs
first.
Transactions with Affiliates and Advances
The Company requires that transactions between the Company and persons or
entities affiliated with officers, directors, employees or stockholders of the
Company be on terms no less favorable to the Company than could be obtained in
an arm's-length transaction with an unaffiliated party. Such transactions are
subjected to approval by a majority of the non-employee directors of the
Company. The Board of Directors has adopted resolutions prohibiting advances
without its approval, except for ordinary business and travel advances in
accordance with the Company's policy.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - the following consolidated financial
statements of Delta and Pine Land Company and subsidiaries are
submitted in response to Part II, Item 8:
Report of Independent Public Accountants
Consolidated Statements of Income - for each of the three years
in the period ended August 31, 1999
Consolidated Balance Sheets - August 31, 1998 and 1999
Consolidated Statements of Cash Flows - for each of the three
years in the period ended August 31, 1999
Consolidated Statements of Stockholders' Equity - for each of the
three years in the period ended August 31, 1999
Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedule - the following financial statement
schedule of Delta and Pine Land Company and subsidiaries are submitted
in response to Part IV, Item 14:
Report of Independent Public Accountants............................73
Schedule II - Consolidated Valuation and Qualifying Accounts........74
All other schedules have been omitted as not required, not applicable
or because all the data is included in the financial statements.
(a) 3. Exhibits
The exhibits to the Annual Report of the Delta and Pine Land Company filed
herewith are listed on Page 62.
(b) 4. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended August 31,
1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on November19, 1999.
DELTA AND PINE LAND COMPANY
(Registrant)
/s/ Roger D. Malkin November 19, 1999
- -----------------------------------------------
By: Roger D. Malkin, Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Roger D. Malkin Chairman of the Board November 19, 1999
- -------------------- and Chief Executive Officer
Roger D. Malkin (Principal Executive Officer)
/s/ W. Thomas Jagodinski Vice President-Finance and November 19, 1999
- ------------------------- Treasurer (Principal Financial
W. Thomas Jagodinski and Accounting Officer)
/s/ Nam-Hai Chua Director November 19, 1999
- --------------------
Nam-Hai Chua
/s/Jon E.M. Jacoby Director November 19, 1999
- --------------------
Jon E.M. Jacoby
/s/ Joseph M. Murphy Director November 19, 1999
- ---------------------
Joseph M. Murphy
/s/ Stanley P. Roth Director November 19, 1999
- --------------------
Stanley P. Roth
/s/ Rudi E. Scheidt Director November 19, 1999
- --------------------
Rudi E. Scheidt
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO DELTA AND PINE LAND COMPANY:
We have audited in accordance with generally accepted auditing standards, the
financial statements of Delta and Pine Land Company included in this Form 10-K.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index of Part
IV, Item 14(a)2, is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Memphis, Tennessee,
November 15, 1999.
SCHEDULE II
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Column A Column B Column C Column D Column E
Description Balance at Charged Charged to Balance at
Beginning Costs and Other End of
of Period Expenses Accounts Deductions Period
- ------------------------------------------------------------------------------------------------------------------------
Fiscal year ended August 31, 1997
Allowance for doubtful accounts $ 379 $ - $ - $ (98)(a) 281
Inventory valuation reserve $ 1,934 $ 3,829(b) - $ (3,238)(c) 2,525
Fiscal year ended August 31, 1998
Allowance for doubtful accounts $ 281 $ 200 $ - $ (113)(a) 368
Inventory valuation reserve $ 2,525 $ 17,527(d) - $ (10,130)(c) 9,922
Fiscal year ended August 31, 1999
Allowance for doubtful accounts $ 368 $ 118 $ - $ (11)(a) 475
Inventory valuation reserve $ 9,922 $ 15,365(e) - $ (11,179)(c) 14,108
(a) Write off of uncollectible accounts, net of recoveries
(b) Reserve of cottonseed as a result of production and cost optimization
program
(c) Disposal and/or write-off of inventory
(d) Reserve of cottonseed resulting from reduction in cotton acreage in 1998,
the further realignment of the Company's product line to seed with new
technologies and the recall of certain products that did not meet quality
standards.
(e) Reserves of excess planting seed inventory and for the realignment of the
Company's product line.
INDEX
EXHIBITS TO ANNUAL REPORT ON FORM 10-K
YEAR ENDED AUGUST 31, 1999
DELTA AND PINE LAND COMPANY
Exhibits(1) Description
- ----------- -----------
2.01 Agreement and Plan of Merger dated as of May 8, 1998, by and between
Monsanto Company and Delta and Pine Land Company. (2)
2.02 Termination Option Agreement dated as of May 8, 1998, by and between
Monsanto, Company and Delta and Pine Land Company. (2)
3.01 Restated Certificate of Incorporation of the Registrant dated June 11,
1993.
3.02 Amended and Restated By-Laws of the Registrant dated April 26, 1993.
4.01 Certificate of Designation, Convertible Preferred Stock of Delta and Pine
Land Company. (3)
4.02 Specimen Certificate representing the Common Stock, par value $.10 per
share.
4.03 Letter from Registrant to John Hancock Mutual Life Insurance Company
regarding certain registration rights dated June 28, 1993.
4.04 Rights Agreement, dated as of August 13, 1996, between Delta and Pine Land
Company and Harris Trust and Savings Bank, including the form of Right
Certificate and related form of Election to Purchase as Exhibit A and the
Summary of Rights to Purchase Preferred Shares as Exhibit B. (4)
4.05 Amendment No. 1 to the Rights Agreement dated May 8, 1998, by and between
Delta and Pine Land Company and the Harris Trust and Savings Bank. (2)
4.06 Certificate of Designations of the rights and privileges of the shares of
junior participating preferred stock created on August 13, 1996, to be filed
pursuant to Section 151 of the Delaware General Corporation Law. (4)
10.01 Lease dated March 25, 1995, between Registrant, as Lessee, and The
Prudential Insurance Company of America, as Lessor regarding approximately
2,500-acre farm, certain grain bins, and a certain research facility in Scott,
Mississippi. (5)
10.02 License Agreement dated February 1, 1990, between Registrant, as Licensor,
and Semillas Deltacol, Ltd., as Licensee, regarding operations in Columbia.
10.03 License Agreement dated March 5, 1990, between Registrant, as Licensor and
Helena Chemical Company d/b/a HyPerformer Seed Company, as Licensee.
10.04 License Agreement dated March 16, 1992, between Registrant and Monsanto
Company, as amended by the Agreement on Modified Terms for License Agreement
Dated October 11, 1993 (confidential treatment has been requested for portions
of this exhibit pursuant to Rule 24b-2 under the Securities and Exchange Act of
1934). (1)(7)
10.05 Incentive Bonus Program.(1)(6)
10.06 Retirement Plan of the Company, dated January 2, 1992, Amendment No. 1 to
the Plan dated April 30, 1992, Amendment No. 2 to the Plan dated December 20,
1992, and Amendment No. 3 to the Plan dated October 6, 1994. (1)(5)
10.07 Agreement between Educo, Inc. and Southwide dated June 1, 1975, relating
to employer-sponsored college scholarships and medical expense plan for children
of certain employees of Registrant.
10.08 Supplemental Executive Retirement plan dated May 22, 1992, and effective
January 1, 1992. (1)(6)
10.09 Tax Sharing Agreement dated May 24, 1993, between Southwide and
Registrant.
10.10 1993 Stock Option Plan of Registrant, as adopted on June 11, 1993. (1)(6)
10.11 Asset Purchase agreement between Delta and Pine Land Company and Cargill,
Inc. dated May 2, 1994 (8)
10.12 Herbicide-Tolerant Cotton License Agreement dated August 22, 1994, between
the Company and E.I. Dupont De Nemours and Company (confidential treatment has
been requested for portions of this exhibit pursuant to the Rule 24b-2 under the
Securities and Exchange Act of 1934).(7)
10.13 1994 Saving Plan of Registrant, as adopted on April 1, 1994, Amendment No.
1 dated May 1, 1994. (5)(6)
10.14 $50,000,000 Revolving Credit Agreement between Registrant and Nations Bank
dated November 15, 1995. (5)
10.15 Hartz Cotton Acquisition Agreement dated February 2, 1996 among Monsanto
Company ("Monsanto"), Hartz Cotton, Inc. ("Hartz Cotton"), Delta and Pine Land
Company (the "Company") and Paymaster Technology Corp. ("PTC"). (3)
10.16 Trademark License Agreement dated February 2, 1996 between Monsanto and
the Company. (3)
10.17 Registration Rights Agreement between the Company and Monsanto dated
February 2, 1996. (3)
10.18 Temporary Services Agreement dated February 2, 1996 between Monsanto, the
Company, and PTC. (3)
10.19 Research Facility Lease with Option to Purchase dated February 2, 1996
between Monsanto and PTC. (3)
10.20 Greenhouse Lease dated February 2, 1996 between Monsanto and PTC. (3)
10.21 Research Agreement dated February 2, 1996 between Monsanto and PTC. (3)
10.22 Partnership Agreement dated February 2, 1996 between the Company and
Monsanto.(3)
10.23 Marketing Services Agreement dated February 2, 1996 between the Company,
Monsanto and D&M Partners. (3)
10.24 Bollgard Gene License and Seed Services Agreement dated February 2, 1996
between Monsanto, D&M Partners, and the Company. (3)
10.25 Roundup Ready Gene License and Seed Services Agreement dated February 2,
1996 between Monsanto, D&M Partners and the Company. (3)
10.26 Option Agreement dated February 2, 1996 between Monsanto and the Company.
(3)(6)
10.27 Agreement between the D&PL Companies and the Sure Grow Companies, Sure
Grow Shareholders and Sure Grow Principals dated May 20, 1996. (9)
10.28 Delta and Pine Land Company 1995 Long-Term Incentive Plan, as adopted on
February 6, 1996. (6)(10)
11.01 Statement Re: Computation of Earnings per Share. (11)
21.01 Subsidiaries of the Registrant. (11)
23.01 Consent of Independent Public Accountants (11)
27.1 Financial Data Schedule. (11)
- -------------------------
(1) All incorporated by reference from Registration Statement on form S-1, File
No. 33-61568, filed June 29, 1993 except as otherwise noted herein.
(2) Incorporated by reference from Form 8-K filed May 14, 1998 (3) Incorporated
by reference from Form 8-K filed February 19, 1996 (4) Incorporated by
reference from Form 8-A filed September 3, 1996 (5) Incorporated by
reference from Form 10-K filed November 22, 1995 (6) Represents management
contract or compensatory plan (7) Incorporated by reference from Form 10-Q
filed July 14, 1995 (8) Incorporated by reference from Form 8-K filed May
16, 1994 (9) Incorporated by reference from Form 8-K filed June 4, 1996
(10) Incorporated by reference from Form 10-K filed November 27, 1996 (11)
Filed herewith
EXHIBIT 11.01
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE TWELVE MONTHS ENDED
August 31, August 31, August 31,
1997 1998 1999
------------------------------------------
BASIC EARNINGS PER SHARE:
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING ------------------------------------------
DURING THE PERIOD 37,579 38,011 38,438
==========================================
NET INCOME APPLICABLE TO COMMON SHARES $ 6,850 $ 1,783 $ 7,477
==========================================
BASIC EARNINGS PER SHARE $ 0.18 $ 0.05 $ 0.19
==========================================
DILUTED EARNINGS PER SHARE:
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING
DURING THE PERIOD 37,579 38,011 38,438
WEIGHTED AVERAGE NUMBER OF SHARES
ATTRIBUTED TO CONVERTIBLE
PREFERRED STOCK 1,066 1,066 1,066
WEIGHTED AVERAGE NUMBER OF SHARES
ATTRIBUTED TO OPTIONS 1,484 1,762 1,469
WEIGHTED AVERAGE NUMBER OF SHARES
OF COMMON STOCK OUTSTANDING
DURING THE PERIOD FOR COMPUTATION ------------------------------------------
OF DILUTED EARNINGS PER SHARE 40,129 40,839 40,973
==========================================
NET INCOME $ 6,913 $ 1,879 $ 7,573
==========================================
DILUTED EARNINGS PER SHARE $ 0.17 $ 0.04 $ 0.18
==========================================
EXHIBIT 21.01
SUBSIDIARIES OF REGISTRANT
SUBSIDIARY PLACE OF INCORPORATION
- --------------------------------------------------------------------------------
ATLED CORPORATION USA
D&M INTERNATIONAL LLC USA
D&M PARTNERS USA
D&PL ARGENTINA, INC. USA
D&PL CHINA, INC. USA
D&PL CHINA PTE, LTD. SINGAPORE
D&PL INVESTING CORP. USA
D&PL INVESTMENTS, INC. USA
D&PL MEXICO, INC. USA
DELTAPINE PARAGUAY, INC. USA
D&PL SOUTH AFRICA, INC. USA
D&PL INTERNATIONAL TECHNOLOGY CORP. USA
DELTA AND PINE LAND INTERNATIONAL, LTD. VIRGIN ISLANDS
DELTA PINE DE MEXICO, S.A. de C.V. MEXICO
DELTAPINE AUSTRALIA PTY. LIMITED AUSTRALIA
GREENFIELD SEED COMPANY USA
HEBEI JI DAI COTTONSEED TECHNOLOGY COMPANY, LTD. CHINA
PAYMASTER TECHNOLOGY CORP. USA
TURK DELTAPINE, INC. USA
SURE GROW SEED, INC. USA
ELLIS BROTHERS SEED, INC. USA
ARIZONA PROCESSING, INC. USA
MISSISSIPPI SEED, INC. USA
D&PL Semillas Limitada Costa Rica
CDM Mandyu S.R.L. Argentina
Delta & Pine Land Hellas Monoprosopi e.P.E. Greece
D&PL BraSil, Ltda Brazil
Anhui An Dai Cottonseed Technology Company, Ltd. China
S.G. Seed, Inc. (name changed November 17, 1998 to USA
D&PL Technology Holding Corp.)
D&M Brasil, Ltda Brazil
MDM Maeda DeltaPine Monsanto Algodao Ltda Brazil
EXHIBIT 23.01
-------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation of our
report, dated October 15, 1999, included in this Form 10-K, into Delta and Pine
Land's previously filed Registration Statement File No. 333-21049.
Arthur Andersen LLP
Memphis, Tennessee,
November 24, 1999.