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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, 2001
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 of (I.R.S. Employer Identification No.)
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,
2001 as reported on the New York Stock Exchange, was approximately $630,753,000.
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, 2001, Registrant had 38,346,867 outstanding shares of Common
Stock.
PART I
ITEM 1. BUSINESS
Domestic
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 Company ("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"). In 1998, D&PL commenced sales of cottonseed of varieties
containing both the Bollgard and Roundup Ready genes.
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 its 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, (ii)
direct in-country operations through either joint ventures or wholly owned
subsidiaries 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 2001, the majority of international sales came from
joint ventures and export sales (primarily China, Greece, Brazil, Australia,
Mexico, and Spain). In 2000, the majority of international sales came from joint
ventures and export sales (primarily China, Australia, Greece, and South
Africa). In 1999, direct in-country operations through joint ventures or
subsidiaries (primarily Argentina, Australia, Brazil, China, and South Africa)
comprised over one-half of total international sales which represented
approximately 10% of consolidated sales.
See Note 10 of the Notes to Consolidated Financial Statements in Item 8 for
further details about business segments.
Joint Ventures
D&M International, LLC, is a venture formed in March, 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") and 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, China, pursuant to the terms of the joint venture agreement. The new
facility was completed in December 1997 and seed processing and sales of seed of
a D&PL cotton variety containing Monsanto's Bollgard technology 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. 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, which received government approval in 2001.
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, 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.
Commercial sales of D&PL cotton varieties containing the Bollgard gene
technology began in 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. ("MDM"), produces, conditions and sells acid-delinted D&PL varieties of
cotton planting seed. In 2000, the Company began selling D&PL conventional
cotton varieties and first year sales accounted for more than 20% of cotton
acreage planted in Brazil. MDM will introduce transgenic cottonseed varieties
containing both Bollgard and Roundup Ready gene technologies in the Brazilian
market as soon as government approvals are obtained.
In October 2001, the Company announced that it had recently signed Letters of
Intent with two parties in China to form two new joint ventures there, one each
in Hubei and Henan provinces. These two new potential markets contain 1.2
million acres which is almost 1.5 times the size of the combined Hebei and Anhui
markets.
Subsidiaries
The Company's operations 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 Canas, Costa Rica and has completed construction
of 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 Pty. Ltd., a wholly owned Australian subsidiary of D&PL,
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.
Employees
As of October 31, 2001, the Company employed a total of 538 full time employees
worldwide excluding an estimated 150 employees of joint ventures. 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.
Biotechnology
Insect Resistance for Cotton
Collaborative biotechnology licensing agreements, which were executed with
Monsanto in 1992 and subsequently revised in 1993 and amended and restated in
1996 and further amended in December 1999, provide for the commercialization of
Monsanto's Bollgard ("Bacillus thuringiensis" or "Bt") gene technology in D&PL's
varieties in the United States. 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, the United States Environmental
Protection Agency ("EPA") 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 had
been set to expire on January 1, 2001 but was updated to expire January 1, 2002.
In September 2001, the EPA renewed the registration for an additional five
years, 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 (90%) and
Monsanto (10%), in order to purchase seed containing the Bollgard gene
technology. D&M Partners contracts the billing and collection activities for
Bollgard and Roundup Ready licensing fees to Monsanto. 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 expiration date of the
Bollgard Agreement is determined by the last to expire of the patent rights
licensed under that agreement. Unless sooner terminated by the Company, as is
permitted after October 11, 2008, the expiration date of the Bollgard Agreement
based on the last to expire of the patents currently licensed thereunder will be
September 28, 2016.
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.
Herbicide Tolerance for Cotton
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. Pursuant to the
collaborative biotechnology licensing agreements executed in 1996 and amended in
December 1999, 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. 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 2000 and
2001, D&M Partners paid Monsanto approximately 70% of the Roundup Ready
technology fees and D&PL retained the remaining 30%. The expiration date of the
Roundup Ready Agreement is determined by the last to expire of the patent rights
licensed under that agreement. Unless sooner terminated by the Company, as is
permitted after October 11, 2008, the expiration date of the Roundup Ready
Agreement based on the last to expire of the patents currently licensed
thereunder will be May 27, 2014.
Pursuant to the Roundup Ready Agreement, 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.
Herbicide Tolerance for Soybeans
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. D&PL and Monsanto renegotiated
the terms of sale of Roundup Ready Soybeans for 2001 and future years and
executed a new agreement in September 2001.
Since 1987, D&PL has conducted research 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.
Transformation, Enabling and Other Technologies
On July 27, 1999, United States Patent No. 5,929,300, entitled POLLEN BASED
TRANSFORMATION SYSTEM USING SOLID MEDIA, was issued to the United States of
America as represented by the Secretary of Agriculture (USDA). This patent
covers transformation of plants. D&PL and the USDA executed on December 18, 2000
a commercialization agreement, providing D&PL exclusive rights to market this
technology, subject to certain rights reserved to the USDA.
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 all species of plants and seed, both transgenic and
conventional, for a system designed to allow control of progeny seed viability
without harming the crop. One application of the technology could be to control
unauthorized planting of seed of proprietary varieties (sometimes called "brown
bagging") by making such a practice non-economic since unauthorized saved seed
will not germinate, and, therefore, 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 and the USDA executed a
commercialization agreement on July 6, 2001 for this technology. D&PL intends
licensing of this technology to be widely available to other seed companies.
The 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 ("USDA-ARS") in
Lubbock, Texas. The technologies resulted from basic research and will require
further development, currently 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.
The Company also has exclusive rights to market to third parties a method of
plant transformation that was developed by the USDA-ARS under a research
contract (funded by D&PL). This patent and the marketing rights apply to all
plant species on which the method of transformation is effective. This
transformation method uses techniques and plant parts that are not covered by
currently issued plant transformation U.S. patents held by others. It is a
method which should be more efficient and effective than many other plant
transformation techniques currently available.
Other
The Company has licensing, 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.
Commercial Seed
In 2001, the Company had available for sale 95 varieties as cotton planting seed
for either commercial or experimental purposes. Of those varieties, 11 contained
the Bollgard gene technology, 22 contained the Roundup Ready gene technology, 18
contained both gene technologies, and 44 were conventional varieties.
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, U.S.
patent laws make unlawful any unauthorized planting of seed containing patented
genetic technology saved from prior crops.
The Company farms approximately 2,500 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 recognized when seed is shipped. Revenues
from Bollgard and Roundup Ready licensing fees are recognized when the seed is
shipped. The licensing fees charged to farmers are based on pre-established
planting rates for eight geographic regions and considers the estimated number
of seed contained in each bag which may vary by variety, location grown, and
other factors.
International export revenues are recognized upon the later of when seed is
shipped or the date letters of credit are confirmed. Generally, international
export sales are not subject to return. All other international revenues from
the sale of planting seed, less estimated reserves for returns, are recognized
when the seed is shipped.
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.
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, nor does it expect to be
adversely affected by these changes due to the nature of the Company's
activities there. For the foreseeable future, the Company does not expect a
material amount of its transactions to be denominated in the euro.
Outlook
From time to time, the Company may make forward-looking statements relating to
such matters as anticipated financial performance, existing products, technical
developments, new products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. In order to comply with the terms of the
safe harbor, the Company notes that a variety of factors could cause the
Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include those noted elsewhere in this Item and in "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 world 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 in the United States are in: Eloy, Arizona; Hollandale, Mississippi;
Tunica, Mississippi; and Aiken, Texas. The Company owns a soybean processing
plant in Harrisburg, Arkansas. The Company also owns cottonseed delinting
facilities in Narromine, New South Wales, Australia; Groblersdal, South Africa;
Canas, Costa Rica; Shijiazhuang, Hebei, China (through a Chinese joint venture);
and Saenz Pena, Chaco, Argentina (through an Argentine joint venture).
The Company's plant breeders conduct research at eight facilities in the United
States, six of which are owned by the Company and two of which are leased. The
Company also owns a research facility in Australia and leases research
facilities in Brazil, Greece, and Australia. In connection with its foundation
seed program, the Company leases land in the United States, Argentina, Costa
Rica, South Africa, Turkey, China, Brazil, and Australia.
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).
PRINCIPAL COMPANY LOCATIONS, AFFILIATES AND SUBSIDIARIES:
World Headquarters Operations Facilities
Scott, Mississippi, USA Scott, Mississippi, USA
Hollandale, Mississippi, USA
Research Centers Tunica, Mississippi, USA
Scott, Mississippi, USA Chandler, Arizona, USA
Winterville, Mississippi, USA Eloy, Arizona, USA
Maricopa, Arizona, USA Harrisburg, Arkansas, USA
Tifton, Georgia, USA Aiken, Texas, USA
Hartsville, South Carolina, USA Lubbock, Texas, USA
Hale Center, Texas, USA Catamarca, Argentina
Haskell, Texas, USA Saenz Pena, Chaco, Argentina
Lubbock, Texas, USA Narromine, New South Wales, Australia
Goondiwindi, Queensland, Australia Canas, Costa Rica
Narrabri, New South Wales, Australia Shijiazhuang, Hebei, People's Republic of China
Capinopolis, Minas Gerais, Brazil Groblersdal, South Africa
Larissa, Greece
Foreign Offices
Narrabri, New South Wales, Australia
Beijing, People's Republic of China
Thessaloniki, Greece
Mexicali, Mexico
Mexico City, Mexico
Wassenaar, The Netherlands
Seville, Spain
Izmir, Turkey
Uberlandia, Minas Gerais, Brazil
Hefei City, Anhui, People's Republic of China
Adana, Turkey
ITEM 3. LEGAL PROCEEDINGS
Product Claims
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 did not perform as the farmers had anticipated or as
allegedly represented to them. 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 and they appear to be
totally caused by environmental factors.
The Company and Monsanto were also named as defendants in two additional
lawsuits filed in the State of Texas. One lawsuit was filed in the 106th
Judicial District Court of Gaines County, Texas, on April 27, 2000, and the
other was filed in the 106th Judicial District Court of Dawson County, Texas, on
April 20, 1999, although D&PL was not served with process until May 23, 2001. In
both cases the plaintiffs allege, among other things, that certain cottonseed
acquired from D&PL that contained the Roundup Ready(R) gene did not perform as
the farmer had anticipated. The Company and Monsanto are investigating the
claims to determine the cause or causes of the alleged problem. Pursuant to the
terms of the Roundup Ready(R) Gene License and Seed Services Agreement ("the
Roundup Ready Agreement") between D&PL and Monsanto, D&PL has tendered the
defense of this claim to Monsanto and requested indemnity. Pursuant to the
Roundup Ready(R) Agreement, Monsanto is contractually obligated to defend and
indemnify the Company against all claims arising out of the failure of the
Roundup(R) glyphosate tolerance gene. D&PL will not have a right of
indemnification from Monsanto, however, for any claim involving defective
varietal characteristics separate from or in addition to the herbicide tolerance
gene and such claims are contained in this litigation.
The Company and Monsanto are named as defendants, along with local seed or
technology distributors in twenty-three lawsuits filed in Alabama. Four were
filed in Autauga County, three on March 23, 2000 and one on March 27, 2000;
three were filed in Barbour County, two on October 19, 2000, and one on November
7, 2000; three were filed in Chilton County on March 22, 2000; one was filed in
Dallas County on March 22, 2000; one was filed in Elmore County on March 22,
2000; two were filed in Lowndes County, one on March 14 and one on March 22,
2000; and one was filed in Wilcox County on March 22, 2000; six were filed in
Limestone County, one on April 25, 2001, one on May 17, 2001, and four on
September 14, 2001; and two were filed in Lauderdale County, one on April 6,
2001 and one on April 20, 2001. In each case the plaintiff alleges, among other
things, that certain cottonseed acquired from D&PL, which contained either the
Roundup Ready(R) gene, the Bollgard(R) gene or both of such genes, did not
perform as the farmers had anticipated or as allegedly represented to them.
These lawsuits also include varietal claims aimed solely at the Company. Eleven
of these lawsuits were earlier filed as seed arbitration claims with the Alabama
Department of Agriculture, all of which were dismissed by that entity for lack
of jurisdiction. The Company and Monsanto have investigated the claims, and are
continuing to investigate the claims, to determine the cause or causes of the
alleged problem. Pursuant to the terms of the Roundup Ready(R) Agreement between
D&PL and Monsanto and the Bollgard(R) Gene License and Seed Services Agreement
("the Bollgard Agreement") between D&PL and Monsanto, D&PL has a right to be
contractually indemnified against all claims arising out of the failure of
Monsanto's gene technology. D&PL will not have a right to indemnification,
however, from Monsanto for any claim involving varietal characteristics separate
from or in addition to the failure of the Monsanto technology and such claims
are contained in each of these lawsuits.
The Company and Monsanto and various retail seed suppliers were named in three
pending lawsuits in the State of South Carolina. One lawsuit was filed November
15, 1999, in the Beaufort Division of the United States District Court, District
of South Carolina; both of the other cases were filed on November 15, 1999, in
the Court of Common Pleas of Hampton County, South Carolina. The two state court
lawsuits were removed to the United States District Court for the District of
South Carolina but were subsequently remanded back to the state court in which
they were filed. In each of these cases the plaintiff alleges, among other
things, that certain seed acquired from D&PL which contained the Roundup
Ready(R) gene and/or the Bollgard(R) gene did not perform as the farmer had
anticipated. These lawsuits also include varietal claims aimed solely at the
Company. Of these cases, one filed in Hampton County and the other filed in the
United States District Court seek class action treatment for all purchasers of
certain D&PL varieties which contain the Monsanto technology. The Company and
Monsanto are continuing to investigate the claims to determine the cause or
causes of the alleged problem. Pursuant to the terms of the Roundup Ready(R)
Agreement between D&PL and Monsanto and the Bollgard(R) Agreement between D&PL
and Monsanto, D&PL has a right to be contractually indemnified against all
claims arising out of the failure of Monsanto's gene technology. D&PL will not
have a right to indemnification, however, from Monsanto for any claim involving
varietal characteristics separate from or in addition to the failure of the
Monsanto technology and such claims are contained in each of these lawsuits.
The Company was named in two lawsuits filed in the State of Mississippi. One
lawsuit was filed in the Circuit Court of Lowndes County, Mississippi on July
11, 2001. That suit alleges that certain cottonseed sold by D&PL did not
germinate properly or at the rate stated on the label causing the farmer to
incur losses during the 1998 growing season. The other suit was filed in the
Circuit Court of Webster County on August 10, 2001. That suit alleges that the
seed purchased by plaintiff failed to perform as represented and seeks damages
for crop losses incurred during the 1999 growing season. The Company is
presently investigating both claims to determine the cause or causes of the
alleged problems. Neither Mississippi lawsuit alleges that the Monsanto gene
technology failed, and accordingly, it does not appear that D&PL has a claim for
indemnity or defense under the Roundup Ready(R) Gene Agreement.
On March 7, 2001, the Company and Monsanto and local distributors were named in
a lawsuit filed in Bladen County, North Carolina. This case was removed to the
United States District Court for the Eastern District of North Carolina. This
lawsuit alleges that certain cottonseed varieties containing the Roundup
Ready(R) gene did not perform as promised and that the farmer suffered as a
result of lack of tolerance of his growing crop to applications of Roundup(R).
The Company and Monsanto are investigating this claim to determine the cause or
causes of the alleged problem. Pursuant to the terms of the Roundup Ready(R)
Agreement between D&PL and Monsanto, D&PL has tendered the defense of this claim
to Monsanto and requested indemnity. Pursuant to the Roundup Ready(R) Agreement,
Monsanto is contractually obligated to defend and indemnify the Company against
all claims arising out of the failure of the Roundup Ready(R) 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 this
complaint.
On February 5, 2001, D&PL and Monsanto and a local seed distributor were named
in a lawsuit filed in the Sixth Judicial Court, Parish of East Carroll,
Louisiana. This lawsuit alleges that certain cottonseed varieties sold by D&PL
which contained Monsanto's licensed gene technology suffered from a disease or
malady known as bronze wilt. The Company and Monsanto are presently
investigating this claim to determine the cause or causes of the alleged
problem. The lawsuit does not allege that the Monsanto gene technology failed
and, accordingly, it does not appear that D&PL has a claim for indemnity or
defense under the Roundup Ready(R) Agreement as the claim alleges defective
varietal characteristics only.
On June 7, 2001, the Company was named in a lawsuit filed in the Circuit Court
of the County of Crockett, Tennessee. This case was subsequently removed to the
United Sates District Court for the Western District of Tennessee, Eastern
Division. This lawsuit alleges that a specific cotton variety did not perform as
promised and that the plaintiff farmers suffered lower than expected yields as a
result of the allegedly defective variety. Although this lawsuit involves a
cotton variety which contains the Roundup Ready(R) gene, no claim against
Monsanto was alleged, nor is there an allegation that the Monsanto technology
caused or contributed to plaintiffs' problems, thus, Monsanto is not
contractually obligated to defend or indemnify the Company in this case. The
Company is presently investigating this claim to determine the cause or causes
of the alleged problem.
Other Matters
On May 15, 2000, several farmers and a seller of farm supplies filed suit in the
United States District Court for the Northern District of Alabama, against
Monsanto, the Company, and D&M International, LLC (a joint venture of Monsanto
and the Company) under federal antitrust laws and requested class certification.
Plaintiffs claim that defendants have: (1) unlawfully attempted to monopolize
the U.S. cotton seed and herbicide market in violation of ss. 2 of the Sherman
Act; (2) monopolized the U.S. cotton seed and herbicide market in violation of
ss. 2 of the Sherman Act; (3) conspired to unreasonably restrain trade in the
U.S. cotton seed and herbicide market in violation of ss. 1 of the Sherman Act;
and (4) engaged in unlawful tying of cotton seed and herbicide in violation of
ss. 3 of the Clayton Act. Plaintiffs demand unspecified antitrust damages,
including treble and compensatory damages, plus costs of litigation, including
attorneys' fees. In July 2000, the Company answered the complaint and in October
2000, moved for dismissal of the action on the ground that plaintiffs have
failed to allege any conduct or action by the Company that violates the federal
antitrust laws. Discovery has not commenced. On October 22, 2001, the Magistrate
Judge to whom the case is assigned recommended that Monsanto's and DPL's motions
to dismiss the complaint be granted with the plaintiffs having the right to
replead and file a revised complaint within 30 days. The Court has not yet acted
on the Magistrate Judge's recommendation.
In December 1999, Mycogen Plant Science, Inc. ("Mycogen") filed a suit in the
Federal Court of Australia alleging that Monsanto Australia Ltd., Monsanto's
wholly-owned Australian subsidiary, and Deltapine Australia Pty. Ltd., D&PL's
wholly-owned Australian subsidiary, have been infringing two of Mycogen's
Australian patents by making, selling, and licensing cotton planting seed
expressing insect resistance. The suit seeks injunction against continued sale
of seed containing Monsanto's Ingard(R) gene and recovery of an unspecified
amount of damages. The litigation is currently in discovery and pretrial
proceedings. Consistent with its commitments, Monsanto has agreed to defend D&PL
in this suit and to indemnify D&PL against damages, if any are awarded. Monsanto
is providing separate defense counsel for D&PL. D&PL is assisting Monsanto to
the extent reasonably necessary.
In November 1999, Bios Agrosystems S.A. ("Bios"), a former distributor of
SureGrow brand cottonseed in Greece, brought suit in the U.S. District Court in
Delaware against D&PL International Technology, D&PL's subsidiary, to enjoin the
termination of its distributorship which was to become effective at the end of
November 1999. The suit demanded a declaratory judgment that the termination is
not effective and compensatory and punitive damages for wrongful termination.
Bios also filed a request for arbitration and a parallel suit seeking injunctive
relief in a Greek court. In January 2000, the U.S. District Court denied the
request for an injunction to prevent termination of Bios' distributorship and
subsequently enjoined Bios from proceeding with parallel litigation in the Greek
courts. Bios appealed to the United States Court of Appeals for the Third
Circuit. In March 2001, Bios gave notice that it was dismissing its appeal. Bios
has not indicated whether or not it will continue to seek to arbitrate its
claims.
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 $650,000 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. The Company continues to offer seed
for sale in Guatemala.
US Department of Justice - Civil Investigative Demands
On July 18, 1996, the United States Department of Justice, Antitrust Division
("USDOJ"), served a Civil Investigative Demand (the "1996 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 ss.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.
D&PL believes that it has demonstrated to the USDOJ that this acquisition did
not constitute a violation of the Clayton Act or any other anti-trust law. The
USDOJ has taken no further action in connection with 1996 CID.
On August 9, 1999, D&PL and Monsanto received Civil Investigative Demands from
the USDOJ, seeking to determine whether there had been any inappropriate
exchanges of information between Monsanto and D&PL or if any acquisitions are
likely to have substantially lessened competition in the sale or development of
cottonseed or cottonseed genetic traits. In September 1999, D&PL complied with
the USDOJ's request for information and documents in the 1999 CID. The USDOJ has
taken no further action directed toward D&PL in connection with the 1999 CID.
D&PL vs. Monsanto Company and Pharmacia Corp.
On December 20, 1999, Monsanto withdrew its pre-merger notification filed
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("HSR Act")
effectively terminating Monsanto's efforts to gain government approval of the
merger of Monsanto with the Company under the May 8, 1998, Merger Agreement. On
December 30, 1999, the Company filed suit (the "December 30 Suit") in the First
Judicial District of Bolivar County, Mississippi, seeking among other things,
the payment of the $81 million termination fee due pursuant to the merger
agreement, compensatory damages and punitive damages. On January 2, 2000, the
Company and Monsanto reached an agreement whereby the Company would withdraw the
December 30 Suit, and Monsanto would immediately pay the $81 million. On January
3, 2000, Monsanto paid to the Company a termination fee of $81 million as
required by the merger agreement. On January 18, 2000, the Company filed a suit
(the "January 18 Suit") reinstating essentially all of the allegations contained
in the December 30 Suit. The January 18 Suit by the Company against Monsanto
seeks in excess of $1 billion in compensatory and $1 billion in punitive damages
for breach of contract under the merger agreement between the parties. The
Company alleges that Monsanto failed to make its best efforts, commercially
reasonable efforts, and/or reasonable best efforts to obtain antitrust approval
from the U.S. Department of Justice, as required under the terms of the merger
agreement. The Company also seeks damages for breach of the January 2, 2000
agreement pursuant to which the parties were to negotiate for two weeks to
resolve the dispute over failure of the merger to close.
The parties litigated for several months over the appropriate forum to hear the
case. A Delaware Court of Chancery ruling rejected Monsanto's attempt to
maintain the action in Delaware and returned the parties to the Circuit Court
for the First Judicial District of Bolivar County, Mississippi. Monsanto filed a
motion for summary judgment on the breach of contract claims alleging that the
Company suffered no cognizable damages as a result of the failed merger. On
December 18, 2000, the Company amended its complaint to include a claim for
tortious interference with prospective business relations on the grounds that
Monsanto's unreasonable delay prevented the consummation of the merger and kept
the Company from being in a position to enter into transactions and
relationships with others in the industry. In light of the merger of Monsanto
into Pharmacia & Upjohn, Inc., after the filing of the original complaint, the
Company named both Pharmacia Corp. (the newly formed corporation and existing
defendant) and Monsanto Company (a newly spun-off majority-owned subsidiary) as
defendants in the amended complaint. The parties are in discovery. The Company
filed two motions to compel additional discovery from Monsanto. Monsanto filed a
motion for summary judgment and a motion to dismiss the added claim of tortious
interference contained in the amended complaint. Monsanto alleged that it was
entitled to 1) dismissal of the action on the grounds that the Company's amended
complaint did not satisfy any of the elements of a tortious interference claim
and, thus, did not state a viable claim; and 2) summary judgment because the
Company has not suffered any injury as a result of Monsanto's actions. On
November 15, 2001, the Circuit Court denied Monsanto's motion for summary
judgment on the breach of contract claims, holding that the case presents issues
for trial by jury. The Court also denied Monsanto's motion to dismiss or for
summary judgment on D&PL's claim for tortious interference with business
relationships. The Court also granted substantially all of the discovery sought
by D&PL in its motion to compel.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Shareholders of Delta and Pine Land Company was held
on June 20, 2001. The following matters were brought to a vote with the noted
results:
Item For Against Abstain Non-Voted
1. Re-elect Class II Director 32,238,202 0 41,605 6,259,187
Joseph M. Murphy
2. Re-elect Class II Director 32,248,308 0 31,499 6,259,187
Rudi E. Scheidt
Messrs. Jon E. M. Jacoby and F. Murray Robinson continue to serve as Class III
Directors. Class III Directors were elected at the March 30, 2000 Annual Meeting
(which served as a make-up meeting for the 1999 Annual Meeting) to a term
effectively expiring at the 2002 Annual Meeting.
Messrs. Stanley P. Roth and Nam-Hai Chua continue to serve as Class I Directors.
Class I Directors were elected at the December 29, 2000 Annual Meeting to serve
a term expiring at the 2003 Annual Meeting.
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, was as follows:
Common Stock Data 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
- ----------------- ------- ------- ------- -------
FYE August 31, 2000
Market Price Range - Low $22.38 $14.87 $17.45 $21.35
- High 32.69 24.39 23.37 28.59
FYE August 31, 2001
Market Price Range - Low $21.75 $20.00 $22.15 $18.65
- High 26.88 25.55 26.80 25.09
Annual dividends of $0.12 and $0.15 per share were paid in 2000 and 2001,
respectively. In November 2001, the Board of Directors announced it had
increased the quarterly dividend to be paid to the shareholders of record on
November 30, 2001 to $0.05 per share. It is anticipated that quarterly dividends
of $0.05 per share will continue to be paid in the future; however, the Board of
Directors reviews this policy quarterly. Aggregate dividends paid in 2001 were
$5.8 million and should approximate $7.7 million in 2002.
On October 31, 2001, there were approximately 6,000 shareholders of the
Company's 38,346,867 outstanding shares.
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS (In thousands, except per share amounts)
As of and for Year Ended August 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1998 1999 2000 2001
----------- ------------ ----------- ----------- ------------
Operating Results:
Net sales and licensing fees $183,249 $192,339 $260,465 $301,181 $305,806
Special charges and unusual
items(1) (20,700) (22,662) (29,884) 71,233 (6,301)
Net income applicable to
common shares 6,850 1,783 7,477 79,198 32,147
Balance Sheet Summary:
Current assets $145,449 $174,502 $217,543 $313,701 $337,737
Current liabilities 112,524 116,136 174,947 215,315 208,041
Working capital 32,925 58,366 42,596 98,386 129,696
Total assets 220,656 251,791 295,758 390,134 411,521
Long-term debt 30,572 47,070 17,000 2,482 2,836
Stockholders' equity 72,531 80,651 89,404 159,628 188,408
Per Share Data:
Net income applicable to
common shares - Basic $0.18 $0.05 $0.19 $2.06 $0.84
Book value 1.93 2.12 2.33 4.15 4.90
Cash dividends per common share 0.078 0.12 0.12 0.12 0.15
Weighted average number of
shares used in per share
calculations - Basic 37,579 38,011 38,438 38,496 38,473
- ------------------------------------------------------------------------------------------------------------------------------------
(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 and (b) $5.1 million in costs associated
with the Company's evaluation of various strategic alternatives including
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 purchase additional seed in 1999 to ensure that ample seed of both
transgenic and conventional varieties were available and due to lower than
expected soybean sales, (b) special charges of approximately $9.0 million
related to the now failed 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. In 2000, the Company reported the $81 million
merger termination fee, net of related expenses as an unusual income item.
In 2001, the Company reported (a) a $3.0 million special charge for closing
of a delinting plant and a write down of other long lived assets to be
disposed of and (b) a $3.3 million charge for severance pay related to the
plant closing and reductions in operations and corporate staffs.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The shift from conventional cottonseed varieties to transgenic varieties in the
U.S. continues. Overall, both domestic and international cottonseed sales were
up while the soybean business was a disappointment. Domestically, despite low
cotton fiber prices, picker cotton seed unit sales increased as did per unit
selling prices. D&PL continued the successful execution of its international
business plan as evidenced by the 41% increase in international revenues.
Conversely, soybean sales were below both 2001 expectations and 2000 sales due
to pricing decisions that priced our products higher than those of the two
southern soybean market leaders. Lower sales resulted in excess soybean seed and
higher than expected inventory writeoffs. Due to poor weather and low cotton
fiber prices the number of stripper cotton units sold fell below 2001
expectations and 2000 actual sales. Since the revenue potential per acre for
farmers who plant in areas where stripper cotton varieties are grown is
significantly lower than the potential for picker cotton (grown elsewhere in the
U.S.), when commodity prices fall farmers will either choose not to plant the
acreage or will plant it with less expensive conventional or farmer-saved seed.
In August 2001, the Company announced a plant closing and a reorganization of
the corporate staff which resulted in the Company taking a $6.3 million charge
of which $3.0 million was related to asset write down and $3.3 million was for
severance pay and related benefits to those terminated. Essentially all such
severance payments were made by fiscal year end. The changes were made to reduce
excess plant capacity, to reduce production costs, and to reduce corporate
overhead by eliminating positions and realigning the Company's soybean breeding
efforts. The Company expects annual payroll savings to approximate $2.0 million
in 2002 resulting from these charges.
The litigation with Monsanto continues. The trial court has acted on pending
motions. The parties are now in discovery. As discussed in Item 3 and the
footnotes to the financial statements, the Company collected (after D&PL filed a
lawsuit) the $81 million termination fee in 2000 and recorded it net of related
expenses as an unusual item in fiscal 2000.
In July 1999, the Company announced the consolidation of the three divisional
sales and marketing staffs and three divisional technical services staffs into
one Company-wide sales and marketing team and one Company-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. Actual savings approximated $4 million in
fiscal 2000. The three divisional research programs were combined into a single
Company-wide program, and two new research facilities 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.
Outlook
Although cotton fiber prices continued to decline in 2001, cotton farmers
planted more cotton in 2001 over 2000 due in part to low commodity prices of
potentially competing crops and the level of government payments under various
farm programs. At the present time, we expect domestic cotton acreage to remain
relatively flat in 2002 for the same reasons noted above and since 2002
represents the last year of the Freedom to Farm bill put into effect in 1996.
Both houses of Congress are presently working on farm legislation presently
expected to go into effect in 2003. The provisions of this bill are not yet
final and could in fact affect domestic planted acreage of cotton and other row
crops after the expiration of the current Farm bill.
Total cotton acreage worldwide has remained relatively consistent at 80 million
to 85 million acres over the last several decades. The Company continues to
expand its Ex-U.S. presence by forming new joint ventures and working to improve
the operating results of existing Ex-U.S. operations. The tragic events of
September 11, 2001 are not expected to directly affect our existing Ex-U.S.
operations in 2002, however, the Company's five year business plan includes
target markets such as Pakistan (2004) and Uzbekistan (2003). Presently we are
unable to ascertain the effect of recent events on the Company's longer term
growth markets. The Company announced the recent signing of Letters of Intent
with two parties in China to form two new ventures there in addition to the two
existing ventures to further penetrate Ex-U.S. markets in connection with the
execution of its international business plans. The Company remains optimistic
about its ability to execute its domestic and international growth strategies.
The Company also continues to review and evaluate alternative sources and types
of technology that could bring valuable products to farmers. As agreements are
reached with those parties, announcements will be made. In the meantime, the
Company continues to maintain its cash position. The necessity to do so will be
regularly evaluated.
Subsequent to August 31, 2001, the Company, pursuant to its previously announced
re-purchase plan, has purchased in the open market, approximately 200,000 shares
of its common stock and has increased its quarterly dividend to $0.05 per share
from $0.04. The Board reviews the dividend policy quarterly. Assuming the
dividend rate is maintained through 2002, the aggregate payments will be $7.7
million paid to the holders of the 38.5 million shares outstanding. See "Risks
and Uncertainties" located in this item 7.
Net Sales and Licensing Fees
In 2001, D&PL's consolidated net sales and licensing fees increased 1.5% to
$305.8 million from 2000 sales of $301.2 million. This increase is primarily the
result of (a) a continued market penetration of the Company's stacked gene
products in the domestic segment, (b) price increases in the domestic cotton
segment, (c) increased export sales to Mexico, Greece, and Brazil and (d)
increased sales by the Company's joint ventures in China and Brazil. The effects
of these increases were partially offset by lower than expected sales of
soybeans. In 2001, domestic transgenic cottonseed sales comprised approximately
91% of total domestic unit sales of cottonseed, compared to approximately 89% in
2000. International sales increased to $43.9 million in 2001 from $31.0 million
in 2000 due to sales increases in Mexico, Greece, China, and Brazil. In 2001,
soybean sales and licensing fees decreased 34% from 2000.
In 2000, D&PL's consolidated net sales and licensing fees increased 15.6% to
$301.2 million from 1999 sales of $260.5 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 gene technologies, (b)
increased sales of Roundup Ready soybeans and (c) increased international sales.
In 2000, domestic transgenic cottonseed sales comprised approximately 89% of
total domestic unit sales of cottonseed, compared to approximately 80% in 1999.
Roundup Ready soybean units comprised approximately 80% of total units sold in
2000 compared to 64% in 1999. International sales increased to $31.0 million in
2000 from $26.5 million in 1999 due to sales increases in China, Australia and
Greece. The effects of these increases were partially offset by a decline in
export sales in certain smaller markets.
Gross Profit
D&PL's consolidated gross profit increased to $105.6 million in 2001 compared to
$99.4 million in 2000. This increase is primarily attributable to continued
penetration of transgenic cottonseed varieties in the U.S., a price increase in
the U.S. market, and increased sales in the Company's international segment as
discussed above, the positive effects of which were partly offset by lower
soybean margins.
D&PL's consolidated gross profit increased to $99.4 million in 2000 compared to
$75.2 million in 1999. This is primarily attributable to the increased
penetration of transgenic cottonseed varieties in the U.S., increased sales in
the Company's international segment as discussed above and the absence of
special charges in 2000 compared to special charges of $15.2 million which were
recorded in 1999.
Operating Expenses
Operating expenses before special charges increased to $47.6 million in 2001
from $46.0 million in 2000. This increase is primarily due to higher general and
administrative and research costs which were partially offset by continued cost
savings generated from the Company's 1999 reorganization of the sales and
marketing staff and the related synergies for the Company's advertising and
promotional efforts.
Operating expenses before special charges decreased to $46.0 million in 2000
from $46.4 million in 1999. This decrease is primarily due to savings which
resulted from the 1999 reorganization of the Company's sales and marketing and
technical service staffs which were partially offset by higher research and
general and administrative costs. In 1999, 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 ultimately terminated merger with Monsanto which
approximated $9.0 million, were included as operating expenses.
Research and Development Expenses
Research and development expenses increased 6.6% to $19.9 million in 2001 from
$18.7 million in 2000. The increase was primarily attributable to additional
breeding programs in Georgia and Texas, advanced breeding programs, evaluation
of new technologies, and additional international seed testing.
Research and development expenses did not change materially in 2000 from 1999
levels since savings achieved by the 1999 consolidation were offset by the cost
of new research programs.
Selling Expenses
Selling expenses decreased 9.3% to $12.9 million in 2001 from $14.2 million in
2000. Selling expenses decreased 11.6% to $14.2 million in 2000 from $16.1
million in 1999. These decreases are primarily attributable to the Company's
previous reorganization of the sales and marketing staff and the related
synergies of combining the Company's advertising and promotional efforts.
General and Administrative Expenses
General and administrative expenses increased 12.9% to $14.8 million in 2001
from $13.1 million in 2000. The increase primarily consists of an increase in
property, casualty and health insurance costs.
General and administrative expenses increased 12.7% to $13.1 million in 2000
from $11.6 million in 1999. The increase primarily consists of expenses related
to expansion of the Company's operations in Argentina and Brazil, an increase in
insurance costs and higher legal fees associated with the non-U.S. patents,
trademark and variety registrations.
Special Charges and Unusual Item
In connection with the closing of its Chandler, Arizona delinting facility, as
of August 31, 2001, and the reduction in its domestic operations and corporate
staffs, the Company recorded a $6.3 million charge for the severance, plant
closing, and related costs associated with these actions. Of the $6.3 million,
$3.0 million is related to the write down of fixed assets and $3.3 million to
severance pay and related benefits.
In fiscal 2000, the Company reported, as an unusual income item, the $81 million
merger termination fee, net of related expenses, which was paid by Monsanto to
D&PL pursuant to the terms of the May 8, 1998, merger agreement.
In 1999, 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. 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.
Interest Income/Expense
The Company reported net interest income of $3.5 and $0.9 million in 2001 and
2000, respectively, compared to net interest expense of $3.5 million in 1999.
The interest income was primarily earned on cash generated from operating
activities and the $81 million merger termination fee collected from Monsanto in
early 2000.
Net Income and Earnings Per Share
Net income after special charges applicable to common shares was $32.1 million,
$79.2 million, and $7.5 million in 2001, 2000 and 1999, respectively. Net income
per share (diluted) after special and nonrecurring charges was $0.81, $1.98 and
$0.18 in 2001, 2000, and 1999, respectively.
Net income per share (diluted) before special and nonrecurring charges was
$0.91., $0.90, and $0.66 in 2001, 2000, and 1999, respectively. The number of
shares deemed outstanding was 40.1 million, 40.2 million, and 41.0 million in
2001, 2000 and 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The seasonal nature of the Company's business significantly impacts cash flow
and working capital requirements. The Company has maintained credit facilities,
and used early payments by customers and 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. However, cash generated from operations in
2000 and 2001 along with the collection of the merger termination fee has been
used to meet working capital needs in 2001 and to a lesser degree in 2000. The
Company is currently evaluating potential uses of its cash for purposes other
than for working capital needs. One potential such use is the acquisition or
funding of alternative technologies that could be used to enhance the Company's
product portfolio and ultimately the Company's long-term earnings potential.
Another potential use is the repurchase in the open market of the Company's
shares pursuant to its previously announced share repurchase program. Subsequent
to August 31, 2001, the Company repurchased approximately 200,000 shares. Once
the evaluation of certain transactions that are currently being considered is
brought to conclusion (perhaps resulting in such acquisitions), the Company may
reconsider other potential uses of the remaining cash, up to and including
repurchasing shares more aggressively depending on market considerations and
other factors.
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 cash needs normally begin to increase in the first fiscal quarter and
cash needs peak in the third fiscal quarter. Cash is generated and 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. To the extent D&PL
attracts early payments from customers, bank borrowings under the credit
facility are reduced.
In the United States, the Company records accounts receivable 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, as managing
partner of D&M Partners, receives payment from Monsanto. D&PL then pays Monsanto
its royalty for the Bollgard and Roundup Ready licensing fees. As a result of
the timing of these events, accounts receivable and accrued expenses generally
peak at year end.
In April 1998, the Company entered into a syndicated credit facility with its
then existing lender and two other financial institutions which provided for
aggregate borrowings of $110 million. This agreement provided a base commitment
of $55 million and a seasonal commitment of $55 million. The base commitment was
a long-term loan that could be borrowed upon at any time and was due April 1,
2001. The seasonal commitment was a working capital loan that could be drawn
upon from September 1 through June 30 of each fiscal year. Each commitment
offered variable and fixed interest rate options and required the Company to pay
facility or commitment fees and to comply with certain financial covenants. This
agreement expired on April 1, 2001.
The financial covenants under the loan agreements required 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 coverage 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, 2001, the Company was in compliance with the covenants
of the now expired credit facility. See Note 4 of the Notes to Consolidated
Financial Statements in Item 8. D&PL and the lenders are currently negotiating a
replacement facility that will provide for aggregate borrowings of $100 million
plus a $25 million overline and will contain terms and conditions similar to the
1998 facility.
Capital expenditures were $7.5 million, $7.1 million, and $8.1 million in fiscal
2001, 2000 and 1999, respectively. The Company anticipates that capital
expenditures are expected to approximate $9.0 million in 2002. In 2001, the
Company paid dividends aggregating $5.9 million, approximately $0.15 per share.
In November 2001 the Board increased the quarterly dividend, commencing with the
first quarter, to $0.05 per share. The Board reviews the dividend policy
quarterly. However, assuming that the present rate is maintained throughout
2002, aggregate dividends will approximate $7.7 million in 2002.
Cash provided from operations, cash on hand, early payments from customers and
borrowings under the loan agreement if necessary should be sufficient to meet
the Company's 2002 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, new technologies, research and development
activities, and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include those noted elsewhere in this Item and filing and the following:
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 products 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 publicity related to genetically modified organisms ("GMOs") or
products made from plants that contain GMOs may have an effect on the
Company's sales in the future. In 2001, approximately 90% of the Company's
cottonseed that was sold contained either the Bollgard, Roundup Ready, or
both gene technologies and 86% 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 GMOs could impact demand for crops (and ultimately
seed) 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. Furthermore, recent action taken by
the U.S. government, including that taken by the U.S. Military in the
aftermath of the tragic events of September 11, 2001, may serve to further
complicate the Company's ability to execute its long range Ex-U.S. business
plans because those plans include future expansion into Uzbekistan (2003)
and Pakistan (2004).
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.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
addresses the financial accounting and reporting for the impairment or disposal
of long-lived assets. This statement is effective for fiscal years beginning
after December 15, 2001, and interim periods within those fiscal years, with
early application encouraged. Therefore, D&PL must adopt this statement no later
than September 1, 2002. Management has not determined the impact, if any, that
this statement will have on its consolidated financial position or results of
operations.
SFAS No. 143, "Accounting for Asset Retirement Obligations," addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. This
statement is effective for fiscal years beginning after June 15, 2002.
Therefore, D&PL must adopt this statement no later than September 1, 2002.
Management has not determined the impact, if any, that this statement will have
on its consolidated financial position or results of operations.
SFAS No. 142, "Goodwill and Other Intangible Assets," addresses the financial
accounting and reporting for acquired goodwill and other intangible assets.
Amortization of goodwill, including goodwill recorded in past business
combinations, will cease upon adoption of this statement. This statement is
effective for fiscal years beginning after December 15, 2001, however, early
application is permitted for entities with fiscal years beginning after March
15, 2001, provided the first interim financial statements have not been issued
previously. Effective September 1, 2001, the Company adopted SFAS 142 at which
time all goodwill amortization ceased (fiscal 2002 goodwill amortization would
have been approximately $366,000). Other provisions of the statement require
that goodwill be measured periodically for impairment. The impact of adoption on
the Company's consolidated financial position and results of operations related
to those provisions has not yet been determined.
SFAS No. 141, "Business Combinations," requires all business combinations
initiated after June 30, 2001 to be accounted for under the purchase method.
SFAS No. 141 also sets forth guidelines for applying the purchase method of
accounting in the determination of intangible assets, including goodwill
acquired in a business combination, and expands financial disclosures concerning
business combinations consummated after June 1, 2001. Management has determined
the impact of this statement will not have an effect on its consolidated
financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has exposure relative to fluctuations in the price of soybean raw
material inventory, foreign currency fluctuations and interest rate changes.
From time to time the Company enters into various agreements that are considered
derivatives to reduce its commodity price risk. During the year ended August 31,
2001, derivative instruments have not been used to manage foreign currency or
interest rate risks. The Company does not enter into speculative hedges or
purchase or hold any derivative financial instruments for trading purposes.
A discussion of the Company's accounting policies related to derivative
financial instruments is included in Note 1 of the Notes to Consolidated
Financial Statements in Item 8. Further information on the Company's exposure to
market risk is included in Note 12 of the Notes to Consolidated Financial
Statements in Item 8.
The fair value of derivative commodity instruments outstanding as of August 31,
2001, was $210,000. A 10 percent adverse change in the underlying commodity
prices upon which these contracts are based would not result in a material
impact on future earnings.
The Company's earnings are also affected by fluctuations in the value of the
U.S. dollar compared to foreign currencies as a result of transactions in
foreign markets. The Company conducts non-U.S. operations through subsidiaries
and joint ventures in, primarily, Argentina, Australia, Brazil, China, and South
Africa. At August 31, 2001, the result of a uniform 10 percent strengthening in
the value of the dollar relative to the currencies in which our transactions are
denominated would not cause a material impact on earnings.
The Company utilizes fixed and variable-rate debt to maintain liquidity and fund
its business operations, with the terms and amounts based on business
requirements, market conditions and other factors. At August 31, 2001, a 100
basis point change to interest rates (with all other variables held constant) on
the portion of the Company's debt with variable interest rates would not result
in a material change to the Company's interest expense or cash flow.
PART II
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...............................................................23
Management's Report .............................................................................24
Consolidated Statements of Income - for each of the three years in the
period ended August 31, 2001........................................................................25
Consolidated Balance Sheets - August 31, 2000 and 2001..................................................26
Consolidated Statements of Cash Flows - for each of the three years in the
period ended August 31, 2001.........................................................................27
Consolidated Statements of Stockholders' Equity - for each of the three years
in the period ended August 31, 2001..................................................................28
Notes to Consolidated Financial Statements..............................................................29
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND THE SHAREHOLDERS OF 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, 2000 and
2001, and the related consolidated statements of income, cash flows and
stockholders' equity for each of the three years in the period ended August 31,
2001. 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 auditing standards generally accepted
in the United States. 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, 2000 and 2001, and the results of its
operations and its cash flows for each of the three years in the period ended
August 31, 2001, in conformity with accounting principles generally accepted in
the United States.
Arthur Andersen LLP
Memphis, Tennessee,
October 26, 2001.
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 accounting principles generally
accepted in the United States. 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
Consolidated Statements of Income
FOR THE YEARS ENDED AUGUST 31,
(In thousands, except per share amounts)
1999 2000 2001
------------- ------------- ------------
NET SALES AND LICENSING FEES $ 260,465 $ 301,181 $ 305,806
COST OF SALES (170,127) (201,814) (200,236)
SPECIAL CHARGES (15,187) - -
------------- ------------- ------------
GROSS PROFIT 75,151 99,367 105,570
------------- ------------- ------------
OPERATING EXPENSES:
Research and development 18,702 18,685 19,924
Selling 16,054 14,198 12,878
General and administrative 11,624 13,104 14,797
------------- ------------- ------------
46,380 45,987 47,599
SPECIAL CHARGES AND UNUSUAL INCOME ITEM (10,997) 71,233 (6,301)
------------- ------------- ------------
OPERATING INCOME 17,774 124,613 51,670
INTEREST (EXPENSE) INCOME, net (3,502) 852 3,455
OTHER (EXPENSE) INCOME (3,747) 67 (4,255)
MINORITY INTEREST IN LOSS / (EARNINGS) OF SUBSIDIARIES 475 909 (390)
------------- ------------- ------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 11,000 126,441 50,480
PROVISION FOR INCOME TAXES (3,427) (44,150) (18,173)
------------- ------------- ------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR START-UP COSTS 7,573 82,291 32,307
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR START-UP
COSTS - (2,965) -
------------- ------------- ------------
NET INCOME 7,573 79,326 32,307
DIVIDENDS ON PREFERRED STOCK (96) (128) (160)
------------- ------------- ------------
NET INCOME APPLICABLE TO COMMON SHARES $ 7,477 $ 79,198 $ 32,147
============= ============= ============
BASIC EARNINGS PER SHARE $ 0.19 $ 2.06 $ 0.84
============= ============= ============
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN PER SHARE CALCULATIONS - BASIC 38,438 38,496 38,473
============= ============= ============
DILUTED EARNINGS PER SHARE $ 0.18 $ 1.98 $ 0.81
============= ============= ============
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN PER SHARE CALCULATIONS - DILUTED 40,973 40,159 40,111
============= ============= ============
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)
2000 2001
--------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 87,467 $ 114,003
Receivables, net 181,305 176,177
Inventories 35,278 36,745
Prepaid expenses 2,231 2,138
Deferred income taxes 7,420 8,674
--------------- ---------------
Total current assets 313,701 337,737
PROPERTY, PLANT AND EQUIPMENT, NET 65,044 62,839
EXCESS OF COST OVER NET ASSETS OF
BUSINESSES ACQUIRED, net of accumulated amortization of $686 and $772 4,514 4,148
INTANGIBLES, net of accumulated amortization of $854 and $1,118 4,250 4,383
OTHER ASSETS 2,625 2,414
--------------- --------------
Total Assets $ 390,134 $ 411,521
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES :
Notes payable $ 2,000 $ 1,629
Accounts payable 23,441 15,279
Accrued expenses 164,702 175,085
Income taxes payable 25,172 16,048
--------------- ---------------
Total current liabilities 215,315 208,041
--------------- ---------------
LONG-TERM DEBT 2,482 2,836
DEFERRED INCOME TAXES 4,975 4,706
COMMITMENTS AND CONTINGENCIES (Notes 7 and 13)
MINORITY INTEREST IN SUBSIDIARIES 7,734 7,530
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; 456,989 shares
authorized; 107 107
no shares issued or outstanding; Series M Convertible Non-Voting Preferred,
par
value $0.l0 per share; 1,066,667 shares authorized, issued and outstanding
Common stock, par value $0.10 per share; 100,000,000 shares
authorized; 38,945,725 and 39,111,233 shares issued;
38,377,759 and 38,543,267 shares outstanding 3,895 3,911
Capital in excess of par value 45,096 48,406
Retained earnings 123,552 149,923
Accumulated other comprehensive loss (3,146) (4,063)
Treasury stock, at cost; 567,966 shares (9,876) (9,876)
--------------
---------------
Total stockholders' equity 159,628 188,408
--------------- --------------
Total Liabilities and Stockholders' Equity $ 390,134 $ 411,521
=============== ==============
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)
1999 2000 2001
---------- ----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 7,573 $ 79,326 $ 32,307
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,882 7,114 7,435
Noncash items associated with special charges and disposition of 8,902 203 2,348
assets
Minority interest in net (loss) income of subsidiaries (475) (909) 390
Change in deferred income taxes (7,704) 4,647 (1,523)
Changes in assets and liabilities:
Receivables (42,822) (33,379) 5,128
Inventories (4,416) 12,449 (1,257)
Prepaid expenses (279) (758) 93
Accounts payable (3,320) 3,451 (8,162)
Accrued expenses 51,465 21,646 10,383
Income taxes 17,028 18,763 (8,669)
Intangibles and other assets (2,769) 1,438 89
---------- ----------- ----------
Net cash provided by operating activities 30,065 113,991 38,562
---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (8,093) (7,144) (7,466)
Sale of investments and property 100 171 243
---------- ----------- ----------
Net cash used in investing activities (7,993) (6,973) (7,223)
---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of short-term debt (53,889) (9,487) (1,838)
Payments of long-term debt (38,185) (33,000) (19,269)
Dividends paid (4,712) (4,744) (5,936)
Proceeds from long-term debt 9,000 18,482 19,623
Proceeds from short-term debt 56,500 7,668 1,467
Minority interest portion of investment in Subsidiaries 6,459 250 -
Minority interest in dividends paid by Subsidiaries (263) (241) (594)
Payments to acquire treasury stock - (7,703) -
Proceeds from exercise of stock options 1,974 2,273 2,871
---------- ----------- -----------
Net cash used in financing activities (23,116) (26,502) (3,676)
---------- ----------- -----------
EFFECTS OF FOREIGN CURRENCY TRANSLATION GAINS (LOSSES) 534 (601) (1,127)
---------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (510) 79,915 26,536
CASH AND CASH EQUIVALENTS, beginning of year 8,062 7,552 87,467
---------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 7,552 $ 87,467 $ 114,003
========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of capitalized interest $ 3,600 $ 1,100 $ 500
Income taxes $ 600 $ 18,200 $ 27,600
Noncash financing activities:
Tax benefit of stock option exercises $ 3,400 $ 1,700 $ 500
The accompanying notes are an integral part of these consolidated statements.
DELTA AND PINE LAND COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 1999, 2000 AND 2001
(In thousands, except per share data)
Accumulated
Capital in Other Total
Preferred Common Excess of Retained Comprehensive Treasury Stockholders'
Stock Stock Par Value Earnings Income/(Loss) Stock Equity
-------------------------- ------------ ---------------------------------------- ------------
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
adjustment
------------
Total comprehensive income 8,107
Exercise of stock options and
tax benefit of stock option - 19 5,339 - - - 5,358
exercises
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
Net income - - - 79,326 - - 79,326
Foreign currency translation - - - - (601) - (601)
adjustment
------------
Total comprehensive income 78,725
Exercise of stock options and tax
benefit - 29 3,917 - - - 3,946
of stock option exercises
Cash dividends, $0.12 per share - - - (4,744) - - (4,744)
Purchase of common stock - - - - - (7,703) (7,703)
-------------------------- ------------ ---------------------------------------- ------------
Balance at August 31, 2000 107 3,895 45,096 123,552 (3,146) (9,876) 159,628
Net income - - - 32,307 - - 32,307
Foreign currency translation - - - - (1,127) - (1,127)
adjustment
Unrealized gain on hedging - - - - 210 - 210
instruments
------------
Total comprehensive income 31,390
Exercise of stock options and tax
benefit - 16 3,310 - - - 3,326
of stock option exercises
Cash dividends, $0.15 per share - - - (5,936) - - (5,936)
-------------------------- ------------ ---------------------------------------- ------------
Balance at August 31, 2001 $ 107 $ 3,911 $ 48,406 $ 149,923 $ (4,063) $ (9,876) $ 188,408
========================== ============ ======================================== ============
The accompanying notes are an integral part of these consolidated statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 2,500 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/Unusual Items
2001
In August 2001, D&PL announced a series of actions to enhance the company's
ability to execute its long-term growth plans and improve performance and
profitability. The Company closed its Chandler, Arizona facility, as of August
31, 2001, and reduced its operations and corporate staffs. The Company recorded
a $6.3 million charge; $3.0 million for fixed asset write downs and $3.3 million
for severance and related benefits in its fourth quarter. This charge is
included in "SPECIAL CHARGES AND UNUSUAL INCOME ITEM" in the accompanying
Consolidated Statements of Income.
2000
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. On December 20, 1999, Monsanto withdrew its
pre-merger notification filed pursuant