3
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(x) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended November 30, 2001 or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from to ------------------------
------------------------
Commission File Number: 000-21788
Exact name of registrant as specified in its charter:
DELTA AND PINE LAND COMPANY
State of Incorporation: Delaware
I.R.S. Employer Identification Number: 62-1040440
Address of Principal Executive Offices (including zip code)
One Cotton Row, Scott, Mississippi 38772
Registrant's telephone number, including area code:
(662) 742-4500
Indicate by check mark whether Registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES (x) NO ( )
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $0.10 Par Value - 38,462,288 shares outstanding as of December 31,
2001.
25
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - November 30, 2000,
August 31, 2001, and November 30, 2001 3
Consolidated Statements of Operations - Three Months
Ended November 30, 2000 and November 30, 2001 4
Consolidated Statements of Cash Flows - Three Months
Ended November 30, 2000 and November 30, 2001 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Business 18
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
November 30, August 31, November 30,
2000 2001 2001
----------------- ---------------- ----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 86,179 $ 114,003 $ 106,259
Receivables, net 13,635 176,177 11,050
Inventories 76,160 36,745 72,204
Prepaid expenses 2,253 2,138 1,967
Deferred income taxes 7,420 8,674 8,457
----------------- ---------------- ----------------
Total current assets 185,647 337,737 199,937
PROPERTY, PLANT and EQUIPMENT, net 64,706 62,839 62,849
EXCESS OF COST OVER NET ASSETS OF
BUSINESS ACQUIRED, net 4,306 4,148 4,183
INTANGIBLES, net 4,278 4,383 4,298
OTHER ASSETS 2,492 2,414 2,164
----------------- ---------------- ----------------
----------------- ---------------- ----------------
$ 261,429 $ 411,521 $ 273,431
================= ================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 3,129 $ 1,629 $ 2,665
Accounts payable 28,897 15,279 25,572
Accrued expenses 45,820 175,085 42,251
Income taxes payable 13,914 16,048 9,438
----------------- ---------------- ----------------
----------------- ---------------- ----------------
Total current liabilities 91,760 208,041 79,926
----------------- ---------------- ----------------
LONG-TERM DEBT, less current maturities 3,140 2,836 3,236
----------------- ---------------- ----------------
DEFERRED INCOME TAXES 4,975 4,706 4,735
----------------- ---------------- ----------------
MINORITY INTEREST IN SUBSIDIARIES 8,236 7,530 7,994
----------------- ---------------- ----------------
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; no shares issued or outstanding - - -
Series M Convertible Non-Voting Preferred, par value $0.10 per 107 107 107
share; 1,066,667 shares authorized; issued and outstanding
Common stock, par value $0.10 per share; 100,000,000 shares authorized;
38,962,493; 39,111,233 and 39,130,433 issued: 3,896 3,911 3,913
38,394,527; 38,543,267 and 38,354,667 shares outstanding
Capital in excess of par value 45,438 48,406 48,624
Retained earnings 117,442 149,923 143,468
Accumulated other comprehensive loss
(3,689) (4,063) (4,840)
Treasury stock at cost, 567,966; 567,966 and 775,766 shares
(9,876) (9,876) (13,732)
----------------- ---------------- ----------------
Total stockholders' equity 153,318 188,408 177,540
----------------- ---------------- ----------------
$ 261,429 $ 411,521 $ 273,431
================= ================ ================
The accompanying notes are an integral part of these balance sheets.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
(in thousands, except per share amounts)
(Unaudited)
November 30, November 30,
2000 2001
---------------- ----------------
NET SALES AND LICENSING FEES $ 9,694 $ 8,253
COST OF SALES 7,399 5,449
---------------- ----------------
GROSS PROFIT 2,295 2,804
---------------- ----------------
OPERATING EXPENSES:
Research and development 4,157 4,082
Selling 3,128 2,534
General and administrative 3,941 3,272
---------------- ----------------
11,226 9,888
---------------- ----------------
OPERATING LOSS (8,931) (7,084)
---------------- ----------------
INTEREST INCOME, net 1,992 681
OTHER EXPENSE, net (138) (86)
MINORITY INTEREST IN EARNINGS OF SUBSIDIARIES (502) (464)
---------------- ----------------
LOSS BEFORE INCOME TAXES (7,579) (6,953)
INCOME TAX BENEFIT 2,653 2,468
---------------- ----------------
NET LOSS (4,926) (4,485)
DIVIDENDS ON PREFERRED STOCK (32) (53)
---------------- ----------------
NET LOSS APPLICABLE TO COMMON SHARES $ (4,958) $ (4,538)
================ ================
BASIC AND DILUTED NET LOSS PER SHARE $ (0.13) $ (0.12)
================ ================
NUMBER OF SHARES USED IN BASIC AND DILUTED EARNINGS
PER SHARE CALCULATIONS 38,386 38,385
================ ================
DIVIDENDS PER COMMON SHARE $ 0.03 $ 0.05
================ ================
The accompanying notes are an integral part of these statements.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
(in thousands)
(Unaudited)
November 30, November 30,
2000 2001
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,926) $ (4,485)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,874 1,855
Loss on sale of property and equipment - 27
Minority interest in net income of subsidiaries 502 464
Change in deferred income taxes - 246
Noncash changes in other comprehensive income (127) (286)
Changes in current assets and liabilities:
Receivables 167,670 165,127
Inventories (40,882) (35,459)
Prepaid expenses (22) 171
Accounts payable 5,456 10,293
Accrued expenses (118,882) (132,834)
Income taxes payable (11,218) (6,507)
Intangibles and other assets 89 111
---------------- ----------------
Net cash used in operating activities (466) (1,277)
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,373) (1,716)
Sale of investments and property - 13
---------------- ----------------
---------------- ----------------
Net cash used in investing activities (1,373) (1,703)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of short-term debt - (1,588)
Payments of long-term debt (290) (73)
Dividends paid (1,184) (1,970)
Proceeds from long-term debt 948 473
Proceeds from short-term debt 1,129 2,470
Payments to acquire treasury stock - (3,856)
Proceeds from exercise of stock options 303 117
---------------- ----------------
Net cash provided by and (used in) financing activities 906 (4,427)
---------------- ----------------
EFFECTS OF FOREIGN CURRENCY EXCHANGE RATES ON CASH (355) (337)
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,288) (7,744)
CASH AND CASH EQUIVALENTS, as of August 31 87,467 114,003
---------------- ----------------
CASH AND CASH EQUIVALENTS, as of November 30 $ 86,179 $ 106,259
================ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the three months for:
Interest, net of capitalized interest $ 100 $ 300
Income taxes $ 8,600 $ 3,500
Noncash financing activities:
Tax benefit of stock option exercises $ 40 $ 100
The accompanying notes are an integral part of these statements.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
(GAAP) for interim financial information and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
the fair presentation of the consolidated financial statements have been
included. Due to the seasonal nature of Delta and Pine Land Company and
subsidiaries' ("D&PL" or the "Company") business, the results of operations for
the three month periods ended November 30, 2000 and November 30, 2001 or for any
quarterly period, are not necessarily indicative of the results to be expected
for the full year. For further information reference should be made to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report to Stockholders on Form 10-K for the fiscal year ended
August 31, 2001.
Certain prior year balances have been reclassified to conform with the current
year presentation.
Significant Accounting Policies
Intangible Assets and Deferred Charges
Intangible assets consist of trademarks, patents and other intangible assets and
are being amortized using the straight-line method over 5 to 40 years. Excess of
cost over net assets of businesses acquired was being amortized using the
straight-line method over 40 years, however amortization was discontinued as of
September 1, 2001 as discussed further in Note 4. Organization costs for foreign
ventures are amortized over five years.
Derivative Financial Instruments
The Company uses various financial instruments that are considered derivatives
to mitigate its risk to variability in cash flows related to soybean purchases
and to effectively fix the cost of a significant portion of its soybean raw
material inventory. The terms of the hedging derivatives used by the Company are
negotiated to approximate the terms of the forecasted transaction; therefore,
the Company expects the instruments used in hedging transactions to be highly
effective in offsetting changes in cash flows of the hedged items. Realized and
unrealized hedging gains and losses are recorded as a component of other
comprehensive income and are reclassified into earnings in the period in which
the forecasted transaction affects earnings (i.e., is sold or disposed) and
generally occurs during the Company's second and third fiscal quarters.
Quantities hedged that do not exceed the forecasted transactions are accounted
for as cash flow hedges. However, to the extent that the quantities hedged
exceed the forecasted transactions due to intra-season changes to the sales
forecast where it is probable that the originally forecasted transaction will no
longer occur, the Company accounts for these derivative instruments as
discontinued cash flow hedges. The Company does not enter into any derivative
instruments that extend into the future for more than one fiscal year.
During the three months ended November 30, 2001, a foreign subsidiary entered
into foreign currency forward exchange contracts to mitigate its risk associated
with currency fluctuations. The terms of the foreign currency forward exchange
contracts used were negotiated to approximate the terms of the forecasted
transaction; therefore, the subsidiary expects the instruments used in hedging
transactions to be highly effective in offsetting changes in cash flows of the
hedged items. Realized and unrealized hedging gains and losses are recorded as a
component of other comprehensive income and are reclassified into earnings in
the period in which the forecasted transaction affects earnings (i.e., when the
interest expense is recognized).
2. COMPREHENSIVE LOSS
------------------
Total comprehensive loss for the three months ended November 30, 2000 and
November 30, 2001, was (in thousands):
Three Months Ended
------------------
November 30, November 30,
2000 2001
----------------- -----------------
Net loss $ (4,926) $ (4,485)
Other comprehensive loss:
Foreign currency translation losses (355) (337)
Unrealized gains/(losses) on hedging
instruments 127 (76)
Income tax benefit
related to other comprehensive loss 80 147
----------------- -----------------
Other comprehensive loss, net of tax
(148) (266)
----------------- -----------------
Total comprehensive loss $ (5,074) $ (4,751)
================= =================
3. SEGMENT DISCLOSURES
-------------------
The Company is in a single line of business and operates in two business
segments, domestic and international. The Company's reportable segments offer
similar products; however, the business units are managed separately due to the
geographic dispersion of their operations. D&PL breeds, produces, conditions,
and markets proprietary varieties of cotton and soybean planting seed in the
United States. The international segment offers cottonseed in several foreign
countries through both export sales and in-country operations. The Company
develops its proprietary seed products through research and development efforts
in the United States and certain foreign countries.
The Company's chief operating decision maker utilizes revenue information in
assessing performance and making overall operating decisions and resource
allocations. Profit and loss information is reported by segment to the chief
operating decision maker and the Company's Board of Directors. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies in the Company's Form 10-K filed for the year
ended August 31, 2001 with significant changes described in Note 1 to the
financial statements.
Information about the Company's segments for the three months ended November 30,
2000 and November 30, 2001 is as follows (in thousands):
Three Months Ended
November 30, November 30,
2000 2001
----------------- ----------------
----------------- ----------------
Net sales
Domestic $ 80 $ 123
International 9,614 8,130
----------------- ----------------
$ 9,694 $ 8,253
================= ================
Operating (loss)/income
Domestic $ (9,939) $ (8,577)
International 1,008 1,493
----------------- ----------------
$ (8,931) $ (7,084)
================= ================
4. SIGNIFICANT CHANGES IN ASSETS FROM FORM 10-K FOR THE FISCAL YEAR ENDED
------------------------------------------------------------------------
AUGUST 31, 2001
----------------
Accounts receivable decreased approximately $165,127,000 to $11,050,000 at
November 30, 2001 from $176,177,000 at August 31, 2001. This decrease is
primarily related to technology sublicense revenue collections. The
corresponding royalty payments made by the Company for the Bollgard and Roundup
Ready licensing fees is reflected in the decrease of accrued expenses from
August 31, 2001 to November 30, 2001.
5. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
----------------------------------------------
Statement of 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. 141, "Business Combinations," 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. The
application of SFAS 141 did not affect the Company's previously reported amounts
for goodwill or other intangible assets.
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 (first quarter 2002 goodwill amortization
would have been approximately $31,000). 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, however, the
management believes there has been no impairment. Excess of cost over net assets
of business acquired, net as of the three months ended November 30, 2000 and
November 30, 2001 was $4,306,000 and $4,183,000, respectively.
In connection with adopting SFAS 142, the Company reassessed the useful lives
and the classification of its identifiable intangible assets and determined that
they continue to be appropriate. The components of amortized intangible assets
follow (in thousands):
November 30, 2000 August 31, 2001 November 30, 2001
-------------------------------- --------------------------------- --------------------------------
Gross Carrying Accumulated Gross Carrying Accumulated Gross Carrying Accumulated
Amount Amortization Amount Amortization Amount Amortization
---------------- --------------- ----------------- --------------- ---------------- ---------------
---------------- --------------- ----------------- --------------- ---------------- ---------------
Contract-based $ 5,282 $ (1,004) $ 5,501 $ (1,118) $ 5,609 $ (1,311)
Amortization expense for intangible assets during the first quarter of 2002 was
approximately $66,000. Intangible asset amortization expense is estimated to be
$221,000 for the remainder of 2002 and $250,000 in each of the fiscal years from
fiscal 2003 through fiscal 2007.
Actual results of operations for the three months ended November 30, 2001 and
pro forma results of operations for the three months ended November 30, 2000 had
we applied the nonamortization provisions of SFAS 142 in that period follow (in
thousands, except per share amounts):
For the Three Months Ended
--------------------------
November 30, November 30,
2000 2001
---------------- ----------------
---------------- ----------------
Income:
Net loss $ (4,926) $ (4,485)
Add: Goodwill amortization, net of tax 21 --
---------------- -----------------
Adjusted net income $ (4,905) $ (4,485)
================ =================
---------------- ----------------
Basic and Diluted Earnings per Share:
Reported net loss per share $ (0.13) $ (0.12)
Effect of nonamortization of goodwill -- --
---------------- -----------------
---------------- -----------------
Adjusted basic and diluted net loss per share $ (0.13) $ (0.12)
================ =================
================ =================
Shares:
Number of shares used in basic and diluted
earnings per share calculations
38,386 38,385
================ =================
6. INVENTORIES
Inventories consisted of the following (in thousands):
November 30, August 31, November 30,
2000 2001 2001
---------------- ----------------- ----------------
Finished goods $ 49,817 $ 31,835 $ 46,723
Raw materials 32,832 12,515 33,993
Growing crops 705 2,218 1,682
Supplies and other 1,040 1,162 1,225
---------------- ----------------- ----------------
84,394 47,730 83,623
Less reserves (8,234) (10,985) (11,419)
---------------- ----------------- ----------------
$ 76,160 $ 36,745 $ 72,204
================ ================= ================
Substantially all finished goods and raw material inventory is valued at the
lower of average cost or market. Growing crops are recorded at cost. See Note 7
for description of hedging activities.
7. PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment consisted of the following (in thousands):
November 30, August 31, November 30,
2000 2001 2001
---------------- ----------------- -----------------
Land and improvements $ 4,020 $ 4,284 $ 4,422
Buildings and improvements 37,791 38,777 38,665
Machinery and equipment 47,260 48,279 49,249
Germplasm 7,500 7,500 7,500
Breeder and foundation seed 2,000 2,000 2,000
Construction in progress 4,528 1,529 2,098
---------------- ----------------- -----------------
103,099 102,369 103,934
Less accumulated depreciation (38,393) (39,530) (41,085)
---------------- ----------------- -----------------
$ 64,706 $ 62,839 $ 62,849
================ ================= =================
8. DERIVATIVE FINANCIAL INSTRUMENTS
--------------------------------
Net gains of $127,000 and net losses of $76,000 were deferred to other
comprehensive income during the three months ended November 30, 2000 and
November 30, 2001, respectively. For the three months ended November 30, 2000
and November 30, 2001, the Company recorded no gains or losses in earnings as a
result of hedge ineffectiveness or discontinuance of cash flow hedges. At
November 30, 2001, the deferred loss of $76,000, reflected as a component of
accumulated other comprehensive loss, includes realized gains of approximately
$5,000. The deferred loss will be reclassified into earnings within the fiscal
year, however, the actual amount that will be reclassified in earnings may vary
as a result of changes in market conditions.
9. CONTINGENCIES
--------------
Product Liability Claims
The Company is named as a defendant in various lawsuits that allege, among other
things, that certain of the Company's products (including Monsanto's technology)
did not perform as the farmer had anticipated or expected. In many of these
suits, Monsanto and, in some cases, the distributor/dealer who sold the seed
were also named. In all cases where the seed sold contained either or both of
Monsanto's Bollgard and Roundup Ready gene technologies, D&PL tendered the
defense of these cases to Monsanto and requested indemnity. Pursuant to the
terms of the February 2, 1996 Bollgard Gene License and Seed Services Agreement
(the "Bollgard Agreement") and the February 2, 1996 Roundup Ready Gene License
and Seed Services Agreement (the "Roundup Ready Agreement") (both as amended
December 8, 1999) D&PL has a right to be contractually indemnified by Monsanto
against all claims arising out of the failure of Monsanto's gene technology.
Some of the product liability lawsuits contain varietal claims which are aimed
solely at the Company. D&PL does not have a right to indemnification, however,
from Monsanto for any claims involving varietal characteristics separate from or
in addition to the failure of the Monsanto technology. The Company believes that
the resolution of these matters will not have a material impact on the
consolidated financial statements. The Company intends to vigorously defend
itself in these matters. See Part II, Item I for a discussion of each case.
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 had failed
to allege any conduct or action by the Company that violates the federal
antitrust laws. Discovery has not commenced. On December 6, 2001, the United
States District Judge, acting on the recommendation of the Magistrate Judge,
granted Monsanto's and DPL's motions to dismiss the complaint without prejudice.
The plaintiffs were granted 30 days from the District Court's Order to file an
Amended Complaint. On January 7, 2002, plaintiffs filed an Amended Complaint
against Monsanto and the Company; however, plaintiffs did not assert in their
Amended Complaint any claims against D&M International, LLC.
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. D&PL believes this litigation will be resolved without material effect
on D&PL's combined financial condition and without interference with the
distribution of SureGrow brand cottonseed in Greece.
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 $660,000 at current exchange rates) and an injunction
preventing the Company from distributing seed through any other licensee in that
region. The Guatemalan court, where this action is proceeding, has twice
declined to approve the injunction sought. Management believes that the
resolution of the matter will not have a material impact on the Company's
consolidated financial statements. The Company continues to offer seed for sale
in Guatemala.
U.S. Department of Justice - Civil Investigation Demands
On July 18, 1996, the United States Department of Justice, Antitrust Division
("USDOJ"), served a Civil Investigative Demand ("CID") on D&PL seeking
information and documents in connection with its investigation of the
acquisition by D&PL of the stock of Arizona Processing, Inc., Ellis Brothers
Seed, Inc. and Mississippi Seed, Inc. (which own the outstanding common stock of
Sure Grow Seed, Inc). The CID stated that the USDOJ was 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 committed to full cooperation with the USDOJ. D&PL
believes that it demonstrated to the USDOJ that this acquisition did not
constitute a violation of the Clayton Act or any other anti-trust law.
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 prior acquisitions
were likely to have substantially lessened competition in the sale or
development of cottonseed or cottonseed genetic traits. D&PL is complying with
the USDOJ's request for information and documents and with the recent Civil
Investigative Demand. In September 1999, D&PL complied with the USDOJ's request
for information and documents in the 1999 CID.
In November 2001, the USDOJ confirmed that both the 1996 CID and 1999 CID have
been closed with no action directed toward D&PL in either matter.
10. EARNINGS PER SHARE
------------------
Earnings per Share
Basic and diluted earnings per share ("EPS") are the same due to the Company
reporting a net loss in its first fiscal quarter in 2000 and 2001.
For the Three Months Ended
--------------------------
(in thousands, except per share amounts)
November 30, November 30,
2000 2001
----------------- -----------------
Basic And Diluted Earnings per Share -
Net loss $ (0.13) $ (0.12)
================ =================
================ =================
Number of shares used in basic and diluted
per share calculations
38,386 38,385
================ =================
Dividends per common share $ 0.03 $ 0.05
The table below reconciles the basic and diluted per share computations:
For the Three Months Ended
--------------------------
(in thousands, except per share amounts)
November 30, November 30,
2000 2001
---------------- -----------------
---------------- -----------------
Income:
Net loss $ (4,926) $ (4,485)
Less: Preferred stock dividends (32) (53)
---------------- -----------------
Net loss applicable to common shares $ (4,958) $ (4,538)
================ ================
================ ================
Shares:
Number of shares used in basic and diluted
earnings per share calculations
38,386 38,385
================ ================
Per Share Amounts:
Basic and diluted net loss per share $ (0.13) $ (0.12)
================ ================
PART I.
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
Overview
Due to the seasonal nature of the Company's business, D&PL typically incurs
losses in its first and fourth fiscal quarters since the majority of the
Company's domestic sales are made in its second and third quarters. Sales in the
first and fourth quarters are generally limited to those made to export markets
and those made by the Company's non-U.S. joint ventures and subsidiaries located
primarily in the Southern hemisphere.
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.
Results
Net loss for the quarter ended November 30, 2001 of $4.5 million was less than
the net loss of $5.0 million reported in the comparable prior year quarter due
primarily to a reduction in operating expenses of approximately $1.3 million and
higher gross margins earned on slightly lower revenues, the positive effects of
which were partially offset by a decrease in interest income. Revenues for the
quarter decreased as a result of a shift of seed shipments for exports into
December.
The Company also announced that pursuant to its previously announced share
repurchase program it had repurchased in the open market 207,800 shares of its
stock. The Company also increased its quarterly dividend to $0.05 per common and
preferred share.
Results of Operations
The following sets forth selected operating data of the Company (in thousands):
For the Three Months Ended
November 30, November 30,
2000 2001
----------------- -----------------
Operating results -
Net sales and licensing fees $ 9,694 $ 8,253
Gross profit 2,295 2,804
Operating expenses:
Research and development 4,157 4,082
Selling 3,128 2,534
General and administrative 3,941 3,272
Operating loss
(8,931) (7,084)
Loss before income taxes
(7,579) (6,953)
Net loss applicable to common shares
(4,958) (4,538)
The following sets forth selected balance sheet data of the Company as of the
following periods (in thousands):
November 30, August 31, November 30,
2000 2001 2001
----------------- ----------------- ------------------
Balance sheet summary-
Current assets $ 185,647 $ 337,737 $ 199,937
Current liabilities 91,760 208,041 79,926
Working capital 93,887 129,696 120,011
Property, plant and equipment, net 64,706 62,839 62,849
Total assets 261,429 411,521 273,431
Outstanding borrowings 6,269 4,465 5,901
Stockholders' equity 153,318 188,408 177,540
Three months ended November 30, 2000, compared to three months ended November
30, 2001:
Net sales and licensing fees decreased approximately $1.4 million to $8.3
million from $9.7 million. This decrease is attributable to a shift in export
shipments from the first quarter to the second quarter.
Operating expenses decreased from $11.2 million in the first fiscal quarter of
2001 to $9.9 million in fiscal 2002. This decrease is due, in part, to savings
which resulted from the Company's August 2001 corporate realignment and, in
part, to timing.
The Company reported net interest income of $2.0 million in the first fiscal
quarter of 2001 compared to net interest income of $0.7 million in the first
fiscal quarter of 2002 due to lower interest rates earned on cash investments.
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 207,800 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 November 30, 2001, the Company was in compliance with the covenants
of the now expired credit facility. 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 for the first quarter of 2002 were $1.7 million ($1.4
million for the three months ended November 30, 2000). The Company anticipates
that capital expenditures will approximate $9.0 million in 2002. Capital
expenditures will be funded by cash from operations, borrowings, or investments
from joint venture partners, as necessary.
The Board of Directors reviews the Company's dividend policy quarterly. In
November 2001 the Board increased the quarterly dividend to $0.05 per share (a
25% increase) effective for the first quarter dividend which was paid on
December 14, 2001, to shareholders of record on November 30, 2001.
In the second quarter of 2000, the Board of Directors approved a Stock
Repurchase Plan pursuant to which the Company may repurchase its outstanding
common stock. The shares repurchased will be used for stock issuances pursuant
to the Company's stock option plans, the expected conversion of the outstanding
convertible Preferred Stock and for other corporate purposes. During the quarter
ended November 30, 2001, 207,800 shares were repurchased by D&PL.
Item 3. 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. For
more information about how the Company manages specific risk exposures, see the
discussion of the Company's accounting policies related to derivative financial
instruments included in Note 1 to the Company's consolidated financial
statements contained in the Company's Annual Report on Form 10-K for the year
ended August 31, 2001. Further information on the Company's exposure to market
risk is included in Note 12 to the Company's consolidated financial statements
in the Company's Annual Report on Form 10-K for the year ended August 31, 2001.
Also see Note 7 of the Notes to consolidated financial statements in Item 1 for
further details about the Company's exposure to market risk.
During the three months ended November 30, 2001, a foreign subsidiary entered
into foreign currency forward exchange contracts to mitigate its risk associated
with currency fluctuations. The fair value of these foreign currency forward
exchange contracts outstanding as of November 30, 2001 was $3,000. A 10% adverse
change in the underlying currency upon which these contracts are based would not
result in a material impact on earnings.
The fair value of derivative commodity instruments outstanding as of November
30, 2001 was $73,000. A 10% adverse change in the underlying commodity prices
upon which these contracts are based would not result in a material impact on
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 November 30, 2001, the result of a uniform 10% 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 November 30, 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. OTHER INFORMATION
Item 1. Legal Proceedings
Product Claims
The Company was named as a defendant, along with a local seed distributor in a
lawsuit filed in the Superior Court of the County of Colquit, Georgia on October
5, 2001. This lawsuit was removed to the United States District Court for the
Middle District of Georgia. The lawsuit alleges that certain cottonseed
varieties sold by D&PL suffered from a disease or malady known as bronze wilt.
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 Monsanto technology caused or contributed to Plaintiff's claims. Thus,
Monsanto was not contractually obligated to defend or indemnify the Company in
this case. The Company is presently investigating this claim to determine the
causes of the alleged problems.
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 an additional lawsuit
filed in the 106th Judicial District Court of Gaines County, Texas, on April 27,
2000. In this case the plaintiff alleges, 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 and Monsanto has agreed to
do so. 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 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 had failed
to allege any conduct or action by the Company that violates the federal
antitrust laws. Discovery has not commenced. On December 6, 2001, the United
States District Judge, acting on the recommendation of the Magistrate Judge,
granted Monsanto's and DPL's motions to dismiss the complaint without prejudice.
The plaintiffs were granted 30 days from the District Court's Order to file an
Amended Complaint. On January 7, 2002, plaintiffs filed an Amended Complaint
against Monsanto and the Company; however, plaintiffs did not assert in their
Amended Complaint any claims against D&M International, LLC.
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 $660,000 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 stated that the USDOJ was 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 committed to full cooperation with the USDOJ. D&PL
believes that it demonstrated to the USDOJ that this acquisition did not
constitute a violation of the Clayton Act or any other anti-trust law.
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 prior acquisitions
were 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.
In November 2001, the USDOJ confirmed that both the 1996 CID and the 1999 CID
have been closed with no action directed toward D&PL in either matter.
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 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. The
parties are in discovery.
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Business
Domestic
D&PL, a Delaware corporation, and subsidiaries 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 3 of the Notes to Consolidated Financial Statements in Part I, Item 1
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 December 31, 2001, the Company employed a total of 535 full time employees
worldwide excluding an estimated 153 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 remained legal tender through December 31, 2001. On January 2, 2002,
euro-denominated bills and coins were 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.
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.
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 of the Company's Form
10K filed for the year ending August 31, 2001.
Item 6. Exhibits and Reports on Form 8-K
Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended November 30,
2001.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DELTA AND PINE LAND COMPANY
Date: January 14, 2002 /s/ F. Murray Robinson
--------------------------------
F. Murray Robinson, President, Vice Chairman and
Chief Executive Officer
Date: January 14, 2002 /s/ W. Thomas Jagodinski
--------------------------------
W. Thomas Jagodinski,
Senior Vice President - Finance and Treasurer