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SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For the Quarterly Period Ended June 28, 2002

OR

For the transition period from _____________ to _______________

Commission File Number 000-26519

SEMINIS, INC.

(805) 647-1572
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, address and former fiscal year, if changed since last report)

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 [   ]

As of July 26, 2002 the Registrant had 18,294,555 registered shares of Class A Common Stock, $0.01 par value per share, issued and outstanding, and 45,142,508 unregistered shares of Class B Common Stock, $0.01 par value per share, issued and outstanding.

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SEMINIS, INC.

Form 10-Q
For the Quarterly Period Ended June 28, 2002

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

SEMINIS, INC.
Consolidated Balance Sheets
(In thousands, except per share data)

The accompanying notes are an integral part of these consolidated financial statements.

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SEMINIS, INC.
Consolidated Statements of Operations
(In thousands, except per share data)

The accompanying notes are an integral part of these consolidated financial statements.

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SEMINIS, INC.
Consolidated Statement of Stockholders’ Equity
(In thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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SEMINIS, INC.
Consolidated Statements of Cash Flows
(In thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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SEMINIS, INC.
Notes to Consolidated Financial Statements
(In Thousands, Except Per Share Data)

NOTE 1 — Summary of Significant Accounting Policies

Description of Business

     Seminis, Inc. (“Seminis”, the “Company”, or “we”) is the largest developer, producer and marketer of vegetable and fruit seeds in the world. The Company is a majority-owned subsidiary of Savia, S.A. de C.V. (“Savia”) and effectively began operations when it purchased the Asgrow Seed Company in December 1994.

Basis of Presentation

     The consolidated financial statements include the accounts of the Company and its majority controlled and owned subsidiaries. Investments in unconsolidated entities, representing ownership interests between 20.0% and 50.0%, are accounted for using the equity method of accounting. All material intercompany transactions and balances have been eliminated in consolidation. Certain reclassifications have been made to prior periods to conform to the current quarter presentation.

     Seminis generally operates on a thirteen week calendar quarter closing on the Friday closest to the natural calendar quarter, except for the fiscal year end which closes on September 30.

     The unaudited consolidated financial statements included herein reflect all adjustments, (consisting only of normal recurring adjustments), that the Company considers necessary for a fair presentation of the results of operations for the interim periods covered and of the financial condition of the Company at the date of the interim balance sheet. The Company’s business is subject to seasonal fluctuation and, therefore, the results of operations for periods less than one year are not necessarily indicative of results which may be expected for any other interim period or for the fiscal year as a whole.

Supplementary Cash Flow Information

     On July 3, 2002, we received a $5,899 cash tax refund that resulted from the extension of the net operating loss carryback provisions as provided by the Job Creation and Worker Assistance Act of 2002.

     Effective January 2001, Class C Preferred Stock and additional capital contribution accrue cash dividends at 10% per annum. The syndicated bank agreement, however, precludes the payment of cash dividends.

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Net Income (Loss) per Common Share

     Net income (loss) per common share has been computed pursuant to the provisions of Statement of Financial Accounting Standards No. 128, “Earnings per Share.” Basic income (loss) per common share is computed by dividing net income (loss) available for common stockholders by the average number of common shares outstanding during each period. Net income (loss) available for common stockholders represents net income (loss) less preferred stock and additional capital contribution dividends. Diluted net income (loss) per common share reflects the potential dilution that could occur if dilutive securities and other contracts were exercised or converted into common stock or resulted in the issuance of common stock. The following table provides a reconciliation of net income (loss) and sets forth the computation for basic and diluted net income (loss) per share available for common stockholders.

     A total of 4.4 million and 1.2 million shares of stock options were excluded from the computation of diluted earnings per share for the three and nine months ended June 28, 2002 and the three and nine months ended June 29, 2001, respectively, due to their antidilutive effect. Included in the 4.4 million shares of stock options for the three and nine months ended June 28, 2002 are 2.6 million shares pending stockholders’ approval.

Recent Accounting Pronouncements

     SFAS No. 142, “Goodwill and Other Intangible Assets” was adopted by the Company as of the beginning of fiscal 2002. SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, “Intangible Assets”. It addresses how intangible assets that are acquired individually or with a group of other assets, (but not those acquired in a business combination), should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. The Company expects no impairment in its goodwill and other intangible assets, and ceased the amortization of goodwill that approximated $9.0 million per year.

     In August 2001, FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121 but retains many of its fundamental provisions. In addition, SFAS No. 144 expands the scope of discontinued operations to include more disposal transactions. We will adopt SFAS No. 144 as of October 1, 2002; SFAS No. 144 is not expected to have a material effect on our consolidated financial position, results of operations or cash flows.

     In May 2002, the Financial Accounting Standards Board issued SFAS No. 145, “Rescission of SFAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections.” Among other things, SFAS No. 145 rescinds various pronouncements regarding extinguishment of debt and allows extraordinary accounting treatment for early extinguishment only when the provisions of Accounting Principles Board Opinion No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequent Occurring Events and Transactions” are met. SFAS No. 145 provisions regarding early extinguishment of debt are generally effective for fiscal

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years beginning after May 15, 2002. The Company believes this new standard will not have an impact on its business, consolidated financial position, results of operations or cash flow.

     In June 2002, the Financial Accounting Standards Board issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring.)”

     SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be initially measured at fair market value and recognized when the liability is incurred. In periods subsequent to initial measurement, changes to the liability are measured using the credit-adjusted risk-free rate that was used in the initial measurement of the liability recorded. The cumulative effect of a change resulting from revisions either to the timing or the amount of estimated cash flow is recognized as an adjustment to the liability in the period of the change and charged to the same line items in the statement of operations used when the related costs were initially recognized. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of the Company’s commitment to an exit plan.

     The provisions of SFAS No. 146 are required to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company believes SFAS No. 146 may affect the timing of recognizing future restructuring costs, as well as the amounts recognized, depending on the nature of the exit or disposal activity and the timing of the related estimated cash flows.

NOTE 2 — Liquidity

     As of September 30, 2000, we were not in compliance with certain covenants of our syndicated credit facility, which gave the lenders the right to accelerate payment of all amounts outstanding under the facility. In December 2000, the lenders granted a waiver with respect to these covenants as of September 30, 2000, December 29, 2000, and March 31, 2001 that extended through April 30, 2001, at which time any defaults would once again arise. As we did not expect to be in compliance with our covenants once the waiver expired, all outstanding borrowings under the credit facility were classified as a current liability as of September 30, 2000.

     In connection with granting the waivers, the lenders agreed to reschedule principal payments within fiscal year 2001. The lenders also accelerated the final maturity of the term loan and the termination date for the revolving credit commitments to June 30, 2002 from June 30, 2004. We were obligated to deliver a financial plan through September 30, 2002, which detailed cash flow projections on a monthly basis as well as proposed alternatives for the refinancing of the syndicated credit facility or recapitalization of the Company.

     In April 2001, we submitted a financial plan to our lenders, detailing operating initiatives that reduced existing infrastructure and working capital requirements. Additionally, the plan identified alternative sources of capital to repay the bank debt within newly defined terms, which may include the sale of non-strategic assets, debt refinancing and additional equity infusions.

     On May 31, 2001, our lenders agreed with the financial plan and the terms to restructure our $310.0 million credit facility. Upon receipt of the amended credit agreement, long-term portions of borrowings were reclassified from current liabilities to long-term debt. Among other things, the amendment extended the final maturity of the credit facility from the previously agreed on date of June 30, 2002 to December 31, 2002, revised principal payment dates under the term loan, instituted a new grid pricing formula to determine interest on borrowings, and revised covenant obligations. Additionally, the amendment requires us to submit monthly reports comparing actual cash flows to projections as well as describing the progress and status of any asset sales.

     Interim principal obligations under the amendment included $19.0 million, $4.0 million, $31.0 million, and $9.0 million due in the first, second, third, and fourth quarters of fiscal year 2002, respectively. As all remaining amounts under the credit facility are due within one year, the $238.7 million of outstanding borrowings under the credit facility have been classified as a current liability as of June 28, 2002.

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     We met all required principal and interest payments during fiscal year 2001 and for the nine months ended June 28, 2002, and were in compliance with all of our financial covenants under the amended credit agreement at September 30, 2001, December 28, 2001, March 29, 2002 and June 28, 2002. In October 2001, we completed the sale of an office building in Seoul, South Korea, which generated net proceeds of approximately $20.0 million. We used $19.5 million of the proceeds to pay the scheduled $19.0 million of our syndicated debt in October 2001. We also sold one of our non-core businesses in January 2002, which generated additional proceeds of approximately $17.6 million. We used $13.0 million of the proceeds to prepay our syndicated debt in January 2002 and utilized our operating cash flow to pay the remaining $18.0 million in June 2002. A total of $20.0 million in principal payment was made to the syndicated credit facility in the current quarter. When combined with cash flows expected to be generated from on-going operations and additional proceeds from the sale of non-core assets, we will be able to meet all obligations and covenants under the credit facility through September 30, 2002. We believe we can continue to improve our operating cash flows through aggressive cash collection efforts, disciplined inventory purchases, and lower operating expenses following the global restructuring and optimization plan.

     Whereas we expect to meet our obligations as well as covenant requirements under the amended credit facility through September 30, 2002, we must successfully execute a refinancing or recapitalization plan prior to December 31, 2002 in order to meet the final maturity of the facility. Based on current projections, we will be obligated to pay $229.7 million during the first quarter of fiscal year 2003. We are currently pursuing a refinancing and recapitalization plan which may include negotiation of a new credit facility, placement of new debt securities, and restructuring of our Class C Preferred Stock and additional capital contributions. The Company entered into an exchange agreement with its majority shareholder, Savia S.A. de C.V. as of July 1, 2002 to exchange all of its outstanding Seminis Class C Preferred Stock (including accrued PIK dividends) having a principal value of $120.2 million, Additional Paid-In Capital (including accrued PIK dividends) of $46.7 million and accrued and unpaid cash dividends of $10.0 million into 37.7 million shares of Seminis Class A common stock. The remaining accrued and unpaid cash dividends on the Class C Preferred Stock of $15.0 million will remain due and payable and will be paid in cash by the Company in accordance with the terms of the exchange agreement. On July 3, 2002, the Company received an opinion from UBS Warburg that, as of such date, the number of shares of Class A common stock to be received by Savia in the exchange was fair from a financial point of view to the holders of the Company’s Class A common stock and Class B common stock (in each case other than Savia and its affiliates and other than holders of the Company’s Class B common stock that also hold shares of the Company’s Class B Redeemable preferred stock). The exchange agreement was approved by the Company’s Board of Directors on July 3, 2002, but remains subject to stockholders’ approval. A copy of the opinion of UBS Warburg and a copy of the exchange agreement have been filed as exhibits to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 9, 2002. However, there can be no assurances that we will be able to successfully complete the refinancing and recapitalization plan. Failure to comply with existing covenants which would make the syndicated debt callable, or our inability to obtain adequate financing with reasonable terms prior to December 31, 2002 could have a material adverse impact on our business, results of operations, or financial condition.

NOTE 3 — Global Restructuring and Optimization Plan

     In February 2000, we announced a cost-saving initiative designed to streamline operations, increase utilization of facilities and improve efficiencies. The first phase of the initiative, which commenced in fiscal year 2000, and focused on North American operations, was completed by the end of fiscal year 2001. In June 2001, we commenced the second phase, which was targeted at our global operations and expanded the phase to cover additional headcount reductions and to consolidate our facilities in Holland. We expect the second phase to be completed by the end of our current fiscal year. The key elements to the global restructuring and optimization plan involve:

	•		reorganizing our ten legacy seed companies into four geographical regions;
	•		selling or consolidating certain operation and production facilities;
	•		reducing headcount that results from the reorganization and from facility consolidation;
	•		rationalizing our product portfolio;
	•		implementing an advanced logistics management information system; and
	•		divesting non-strategic assets.

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     In connection with phase one of the global restructuring and optimization plan, we recorded nonrecurring pre-tax charges to operations of approximately $34.4 million for restructuring costs during fiscal year 2000 that included severance and other exit costs, inventory write-downs and costs associated with streamlining our products portfolio. Of this amount, $18.4 million was included in cost of goods sold for inventory write-downs. The remaining $16.0 million was included in selling, general and administrative expenses and consisted primarily of severance costs. The total phase one and initial phase two severance charges related to a planned 600-employee reduction worldwide in both operational and administrative groups.

     As part of the implementation of the expanded second phase of our global optimization plan, we recorded a pre-tax charge of $12.0 million in selling, general and administrative expenses in the third quarter of fiscal year 2001. This charge primarily related to severance and related costs resulting from an additional planned 250-employee reduction worldwide in both operational and administrative groups. Primarily as a result of the global restructuring and optimization plan, we severed 144 and 758 employees in 2000 and 2001, respectively, and an additional 272 employees in the first nine months of fiscal year 2002. We also recorded non-cash inventory write-downs of $58.2 million in cost of goods sold in order to comply with more stringent seed quality standards and to further rationalize our product portfolio from 6,000 to 4,000 varieties. We believe we have established adequate reserves for all of the remaining costs and expenses related to our global restructuring and optimization plan.

     The remaining components of the restructuring accruals are as follows:

     To date, there have been no material adjustments to amounts accrued under the plan.

NOTE 4 — Inventories

     Inventories consist of the following:

NOTE 5 — Seminis, Inc. Stock Award Plan

     During the quarter ended June 29, 2001, we adopted a stock award plan that is subject to stockholder approval. Certain key executives are awarded shares that vest if certain quarterly performance criteria are achieved over an 18-month period. Upon meeting each quarterly goal, the shares awarded become vested. The number of shares of Class A Common Stock eligible to be awarded under this plan is 4.8 million shares. During the first, second and third quarters of fiscal year 2002, we met our performance goals, which resulted in quarterly compensation charges of approximately $1.3 million per quarter for the first and second quarters, and approximately $2.9 million in the third quarter, recorded in selling, general and administrative expenses. As the quarterly goals related to the stock award plan were met in each of the last five quarters, 0.8 million, 0.7 million, 0.7 million, 0.7 million and 0.7 million shares were earned in the third and fourth quarters of fiscal year 2001, and the first, second and third quarters of fiscal year 2002, respectively.

     On December 19, 2001, we received confirmation from NASDAQ that the Company could implement the stock award plan in accordance with NASDAQ rules provided that the stock awards will be forfeited back to the Company if stockholder approval is not obtained. As such, the earned share amounts have been shown as issued shares of Class A Common Stock during the first, second and third quarter of fiscal year 2002. The Company believes that at its stockholders meeting to be held in 2002, its stockholders will approve the stock award plan.

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NOTE 6 — Contingencies

     In January 2002, melon growers in Costa Rica notified us that our Dorado melon seeds were infected with Watermelon Fruit Blotch. Growers who purchased the infected Seminis seeds and growers whose crops were infected by the bacteria that spread from crops grown with the infected Seminis seeds have claimed damages against us. The claims related to those growers who purchased Seminis seeds have been settled for approximately $5.8 million, of which, approximately $2.6 million was recovered under our errors and omissions insurance policy and the remainder of the settlement was paid by the Company by July 2002. The claims related to the growers with the infected crops total approximately $5.2 million and we believe these claims are covered under our general liability insurance policy. We have tentatively settled all of these claims and we have advanced approximately $2.1 million to the growers; however, we are unable to finalize the settlement because our general liability insurance carrier has tentatively denied coverage. We are continuing to negotiate with our general liability insurance carrier on this matter. In the event we cannot finalize the settlement, claims could increase above $5.2 million.

NOTE 7 — Subsequent Event

     The Company entered into an exchange agreement with its majority shareholder, Savia S.A. de C.V. as of July 1, 2002 to exchange all of its outstanding Seminis Class C Preferred Stock (including accrued PIK dividends) having a principal value of $120.2 million, Additional Paid-In Capital (including accrued PIK dividends) of $46.7 million and accrued and unpaid cash dividends of $10.0 million into 37.7 million shares of Seminis Class A common stock. The remaining accrued and unpaid cash dividends on the Class C Preferred Stock of $15.0 million will remain due and payable and will be paid in cash by the Company in accordance with the terms of the exchange agreement. On July 3, 2002, the Company received an opinion from UBS Warburg that, as of such date, the number of shares of Class A common stock to be received by Savia in the exchange was fair from a financial point of view to the holders of the Company’s Class A common stock and Class B common stock (in each case other than Savia and its affiliates and other than holders of the Company’s Class B common stock that also hold shares of the Company’s Class B Redeemable preferred stock). The exchange agreement was approved by the Company’s Board of Directors on July 3, 2002, but remains subject to stockholders’ approval. A copy of the opinion of UBS Warburg and a copy of the exchange agreement have been filed as exhibits to the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 9, 2002.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto of the Company included elsewhere herein. The following discussion and analysis contains certain “forward-looking statements” which are subject to certain risks, uncertainties and contingencies which could cause Seminis’ actual business, results of operations or financial condition to differ materially from those expressed in, or implied by, such statements.

Overview

     Seminis is the largest developer, producer and marketer of vegetable and fruit seeds in the world. Seminis produces more than 60 species and 4,000 distinct varieties of vegetable and fruit seeds. Seminis has established a worldwide presence and global distribution network that spans 150 countries with over 50 research and development facilities in 17 countries and production sites in over 25 countries. Seminis is a majority owned subsidiary of Savia, S.A. de C. V. (“Savia”).

     In order to achieve its position as the premier vegetable and fruit seed company, Seminis has completed ten acquisitions since its formation in 1994 and has incurred significant expenses related to the development of its infrastructure, including its human resource capability, information systems, brand marketing teams and its research and development capability. Seminis expenses its investments in research and development and in the creation of its worldwide sales capability. The comparability of Seminis’ results of operations from year to year has also been affected by expenses associated with the global restructuring and optimization plan, the impact of acquisition accounting under purchase accounting principles, interest expense attributable to acquisition financing and exposure to foreign currency fluctuations.

Results of Operations

     The table below sets forth Seminis’ results of operations data expressed as a percentage of net sales.

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Nine Months Ended June 28, 2002 Compared with Nine Months Ended June 29, 2001

Net Sales

     Net sales decreased 0.1% to $339.0 million for the nine months ended June 28, 2002 from $339.2 million for the same period ended June 29, 2001. The result was primarily due to $3.1 million of negative currency fluctuations relating to weakness in the Euro, South Korean Won, and Brazilian Real versus the United States Dollar during the nine months ended June 28, 2002, compared to the same period in the prior fiscal year. In addition, the nine months ended June 29, 2001 included incremental net sales of $9.2 million from a non-core business divested in January 2002. In constant dollars, stated at monthly average exchange rates for fiscal year 2001, and excluding the sales of the divested non-core business, sales would have increased 3.2%. This increase was primarily attributable to higher sales of onion, cucumber, tomato, white cabbage, peas and bean varieties in the Europe, Middle East, and Africa region. Also, the North and Central America sales region benefited from increased sales of lettuce, spinach and sweet and hot pepper varieties. The sales increases were primarily attributed to price increases implemented in these respective regions. Overall sales increases were partially offset by decreases in Far East region sales due to weak economic and poor weather conditions and in South American sales due to the economic instability in Argentina. Our business is subject to seasonal fluctuations and, therefore, the sales for the first nine months of a fiscal year are not necessarily indicative of those to be expected in any other interim period, or for an entire fiscal year.

Gross Profit

     Gross profit increased 39.8% to $210.6 million for the nine months ended June 28, 2002 from $150.7 million for the nine months ended June 29, 2001. Gross margin increased to 62.1% for the nine months ended June 28, 2002 from 44.4% for the nine months ended June 29, 2001. The improvement in both gross profit and gross margin included a non-cash inventory write-down of $58.2 million taken during the nine months of fiscal year 2001, related to the global restructuring and optimization plan. Excluding the non-cash inventory write-down, gross margin for the period ended June 29, 2001 would have been 61.6%. The increase was also due to seed price increases within the Europe, Middle East, and Africa and the North and Central America sales regions as well as an improved product mix. Additionally, approximately $2.4 million of freight and handling charge revenue was recognized in net sales during the nine months ended June 28, 2002 in compliance with EITF 00-10, “Accounting for Shipping and Handling Fees and Costs,” with the corresponding expense recorded in selling, general and administrative expenses. In the prior year, such freight and handling charge revenue was netted against the corresponding selling, general and administrative expenses.

Research and Development Expenses

     Research and development expenses decreased 18.6% to $32.5 million for the nine months ended June 28, 2002 from $39.9 million for the nine months ended June 29, 2001. The decrease was primarily due to personnel reductions from the global restructuring and optimization plan and currency fluctuations from research and development operations in Europe, South Korea and Brazil for the first nine months of fiscal year 2002. The decrease was also attributable to an approximate $0.8 million research grant received in Europe which offset research and development expenses during the nine months ended June 28, 2002. In addition, expenses decreased by approximately $0.9 million due to the impact of the divestiture of a non-core business.

Selling, General and Administrative Expenses

     Selling, general and administrative expenses decreased 9.6% to $132.5 million for the nine months ended June 28, 2002 from $146.5 million for the nine months ended June 29, 2001. The decrease was primarily the result of approximately $12.0 million of severance provision, $3.0 million of facility moving costs and $3.8 million of consulting fees due to restructuring initiatives incurred in the first nine months of fiscal year 2001 compared to $0.8 million of consulting fees for restructuring during the same period in fiscal year 2002. Additionally, the decrease was attributable to the elimination of $6.0 million of expenses incurred in the second and third quarters of fiscal year 2001, by a non-core business divested in January 2002, combined with the impact of further headcount reductions following the implementation of the global restructuring and optimization plan. The decrease in expenses was partially offset by a primarily non-cash compensation charge of $5.5 million related to an employee stock award plan recorded during the nine months ended June 28, 2002, with $1.3 million recorded during the same period in the prior fiscal year. Additionally, the decrease in expenses was offset by approximately

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$2.4 million of freight and handling charge revenue that was recognized in net sales during the nine months ended June 28, 2002. In the prior year, such freight and handling charge revenue was netted against the corresponding selling, general and administrative expenses.

Amortization of Intangible Assets

     Amortization of intangible assets decreased 40.6% to $12.5 million for the nine months ended June 28, 2002 from $21.1 million for the nine months ended June 29, 2001. The decrease was primarily due to the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets.” The pronouncement requires that periodic amortization of goodwill be ceased, and that annual reviews of the net realizable value of the goodwill need to be performed to determine if an impairment of the goodwill asset value exists. We expect no impairment in goodwill and other intangible assets. Therefore, we recorded no goodwill amortization in accordance with SFAS No. 142 in the first nine months of fiscal year 2002, whereas approximately $6.8 million of goodwill amortization was recorded during the same period of fiscal year 2001. The balance of the decrease was also due to the currency impact from the fluctuation of the South Korean Won on South Korean based intangible assets in the first part of the current fiscal year.

Interest Expense, Net

     Interest expense, net, decreased 30.8% to $21.2 million for the nine months ended June 28, 2002 from $30.6 million for the nine months ended June 29, 2001. The decrease was primarily due to lower average debt balances and interest rates during the first nine months of fiscal year 2002 compared to the same period of the prior fiscal year. During the 12 months ended June 28, 2002, our bank debt balance decreased by approximately $62.1 million.

Other Non-Operating Income (Expense), Net

     We had other non-operating income, including foreign currency gain (loss), net, of $4.6 million for the nine months ended June 28, 2002 as compared to other non-operating expense, net, of $2.4 million for the nine months ended June 29, 2001. Other non-operating income, net, for the nine months ended June 28, 2002 primarily consists of an approximate $4.0 million gain from the sale of a non-core business in January 2002, offset by foreign currency losses of $1.5 million resulting from currency fluctuations in South America and a United States Dollar denominated loan in The Netherlands. Other income, net, also includes gains from non-strategic asset sales in South Korea. Other non-operating expense, net, for the nine months ended June 29, 2001, included a foreign currency loss of $2.1 million and other expense of $0.3 million primarily resulting from the loss on sale of fixed assets.

Income Tax Benefit (Expense)

     Income tax expense was $5.9 million and $29.2 million for the nine months ended June 28, 2002 and June 29, 2001, respectively. The decrease in income tax expense was the result of utilization of net operating loss carryback provisions, the mix of worldwide income tax rates and the establishment of valuation allowances for certain deferred tax assets in fiscal year 2001.

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Three Months Ended June 28, 2002 Compared with Three Months Ended June 29, 2001

Net Sales

     Net sales increased 0.1% to $106.6 million for the three months ended June 28, 2002 from $106.4 million for the same period ended June 29, 2001. The increase in sales was partially due to $1.8 million of positive currency fluctuations relating to the strengthening of the Euro and South Korean Won, versus the United States Dollar during the three months ended June 28, 2002, compared to the same period in the prior fiscal year. Partially offsetting the increase in sales, the three months ended June 29, 2001 included net sales of $2.9 million from a non-core business divested in January 2002. In constant United States Dollars, stated at monthly average exchange rates for fiscal year 2001, and excluding the sales of the divested non-core business, sales would have increased 1.4%. This increase was primarily attributable to higher sales of onion, cucumber, tomato, white cabbage, peas and bean varieties in the Europe, Middle East, and Africa region. The sales increases were primarily attributed to price increases implemented in these respective regions. Third quarter sales in the Far East region also compared favorably to the prior year, due to increased demand conditions in South Korea. Overall sales increases were partially offset by decreases in the North and Central America regions due to seasonal demand changes and in South American sales primarily due to the economic instability in Argentina. Our business is subject to seasonal fluctuations and, therefore, the sales for the third quarter of a fiscal year are not necessarily indicative of those to be expected in any other interim period, or for an entire fiscal year.