1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended August 31,
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2002 or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Commission File Number: 000-21788
DELTA AND PINE LAND COMPANY
(Exact name of registrant as specified in its charter)
Delaware 62-1040440
(State or other jurisdiction
of incorporation or organization) (I.R.S. Employer Identification No.)
One Cotton Row, Scott, Mississippi 38772
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (662) 742-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $0.10 par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2). Yes X No
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The aggregate market value of Common Stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on October 31,
2002 as reported on the New York Stock Exchange, was approximately $637,857,000.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of October 31, 2002, Registrant had 38,148,505 outstanding shares of Common
Stock.
DOCUMENTS TO BE INCORPORATED BY REFERENCE
Registrant incorporates by reference portions of the Delta and Pine Land Company
Proxy Statement for the annual meeting of stockholders to be held on January 22,
2003. (Items 10, 11, 12 and 13 of Part III).
PART I
ITEM 1. BUSINESS
Domestic
Delta and Pine Land Company, a Delaware corporation, and subsidiaries ("D&PL")
is primarily engaged in the breeding, production, conditioning and marketing of
proprietary varieties of cotton planting seed in the United States and other
cotton producing nations. We also breed, produce, condition and distribute
soybean planting seed in the United States.
Since 1915, we have 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. We have used our 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, we added soybean seed to our product line. In 1996, we commenced
commercial sales in the United States of cotton planting seed containing
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Bollgard(R) gene technology licensed from Monsanto which expresses a protein
toxic to certain lepidopteran pests. Since 1997, we have 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, we 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, we commenced sales of cottonseed of varieties containing both the Bollgard
and Roundup Ready genes.
International
During the 1980's, as a component of our long-term growth strategy, we began to
market our products, primarily cottonseed, internationally. Over a period of
years, we have strengthened and expanded our international staff in order to
support our expanding international business. 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. We believe that we have an attractive
opportunity to penetrate foreign markets because of our widely adaptable,
superior cotton varieties, technological know-how in producing and conditioning
high-quality seed and our brand name recognition. Furthermore, Monsanto's
Bollgard and Roundup Ready gene technologies (that we either have licensed or
have options to license) are effective in many countries and could bring value
to farmers.
We sell our products in foreign countries through (i) export sales to
distributors, (ii) direct in-country operations through either joint ventures or
wholly-owned subsidiaries and to a lesser degree (iii) licensees. The method
varies and evolves, depending on our 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. In
2002, the majority of international sales came from direct in-country operations
(primarily Argentina, Australia, Brazil, China, South Africa and Turkey).
See Note 12 of the Notes to Consolidated Financial Statements in Item 8 for
further details about business segments.
____________________
1 On March 31, 2000, Monsanto Company consummated a merger with Pharmacia &
Upjohn Inc. and changed its name to Pharmacia Corporation. On February 9, 2000,
Monsanto Company formed a new subsidiary corporation, Monsanto Ag Company,
which, on March 31, 2000, changed its name to Monsanto Company. On August 31,
2002, Pharmacia distributed to its shareholders its remaining interest in the
new Monsanto Company.
In this document, with respect to events occurring on or before March 31,
2000, the term "Monsanto" refers to the entity then designated Monsanto Company
and renamed Pharmacia Corporation (NYSE: PHA) on that date. With respect to
events occurring after March 31, 2000, this entity is referred to as
"Pharmacia", and the entity formed as Monsanto Ag Company and renamed Monsanto
Company (NYSE: MON) on that date is referred to as "Monsanto".
Joint Ventures
In March 1995, D&PL and Monsanto formed D&M International, LLC to introduce
cotton planting seed in international markets combining our acid delinting
technology and elite germplasm (cottonseed varieties) with 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"). D&PL China is 80% owned by D&M International, LLC and 20%
owned by a Singaporean entity. In November 1996, D&PL China formed Hebei Ji Dai
Cottonseed Technology Company Ltd. ("Ji Dai") with parties in Hebei Province,
one of the major cotton producing regions in the People's Republic of China. Ji
Dai is 67% owned by D&PL China and 33% owned by Chinese parties. 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. ("CDM") is owned 60% by D&M International, LLC, and 40% by
Ciagro. In September 1998, CDM began construction of a cottonseed conditioning
and storage facility in Avia Terai, Chaco, Argentina. Construction was completed
in June 1999. CDM has been licensed to sell our cotton varieties containing
Monsanto's Bollgard gene technology. Sales of such varieties commenced in 1999.
CDM has also been licensed to sell Roundup Ready cottonseed varieties, which
received government approval in 2001. Roundup Ready cottonseed has been
available for sale in Argentina since October 2002.
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. An Dai is 49% owned by D&PL China.
Under the terms of the joint venture agreement, An Dai produces, conditions and
sells our acid delinted varieties of cottonseed, which contain Monsanto's
Bollgard gene. Commercial sales of our cotton varieties containing the Bollgard
gene technology began in 2000. In January 2002, An Dai began construction of a
cottonseed conditioning and storage facility in Hefei City, Anhui, China.
Construction is expected to be completed in April 2003, when the plant will be
operational.
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 joint venture, MDM Maeda Deltapine Monsanto Algodao
Ltda. ("MDM"), produces, conditions and sells our acid-delinted varieties of
cotton planting seed. In 2000, we began selling our conventional cotton
varieties. 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, which Monsanto has announced may not occur
until 2005. MDM is 51% owned by D&M International, LLC and 49% owned by Maeda
Administracao e Participacoes Ltda.
In October 2001, we announced that we had 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 approximately 4.5
million acres of cotton planted in 2001 which is almost 2.5 times the size of
the combined Hebei and Anhui markets. A joint venture agreement was negotiated
and agreed to with the parties in Henan province and the agreement was submitted
to the Chinese government authorities for approval. However, in April 2002,
China announced rules prohibiting new foreign investment in seed companies that
intend to sell genetically modified seed which will restrict the ability of
non-Chinese companies, including us, from investing in such joint ventures. We
have, however, signed a distribution agreement with a party in the Henan
province and will be distributing seed there in fiscal 2003 from our joint
venture in Hebei province, Ji Dai. We expect to continue to expand our business
in China through our existing joint ventures, Ji Dai and An Dai.
In May 2002, we acquired the 50% interest in D&M International, LLC that we did
not own from Pharmacia. Pharmacia activated a cross purchase provision in the
operating agreement for D&M International, LLC, and we elected to have D&M
International, LLC redeem Pharmacia's 50% interest in D&M International, LLC. As
a result of the redemption of Pharmacia's interest, we now own all of D&M
International, LLC.
In May 2002, we established DeltaMax Cotton, LLC, a limited liability company
jointly owned with Verdia, Inc. ("Verdia"; formerly known as MaxyAg, Inc.), a
wholly-owned subsidiary of Maxygen, Inc. DeltaMax Cotton, LLC was formed to
create, develop and commercialize value-enhancing traits for the cottonseed
market that will complement and/or compete with traits available today.
Commercialization of new traits developed by this venture is not expected until
after 2007. DeltaMax Cotton, LLC will contract research and development
activities to Verdia, third parties and D&PL when appropriate, and license its
products to D&PL and potentially to others. D&PL and Verdia each own 50% of
DeltaMax Cotton, LLC.
Subsidiaries
D&PL South Africa, Inc. ("D&PL South Africa"), our wholly-owned subsidiary,
through a South African branch, commercializes cottonseed varieties containing
Monsanto's Bollgard and Roundup Ready technologies in South Africa. In addition,
D&PL South Africa conducts winter nursery activities, produces cottonseed
varieties for export to other countries and processes foundation seed grown in
that country. We also maintain a winter nursery and foundation seed operation in
Canas, Costa Rica and have 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. The use of Southern
Hemisphere winter nurseries and seed production programs such as these can
accelerate the introduction of new varieties because we can raise at least two
crops per year by taking advantage of the Southern Hemisphere growing season.
Deltapine Australia Pty. Ltd., our wholly-owned Australian subsidiary, breeds,
produces, conditions and markets cotton planting seed in Australia. Certain
varieties developed in Australia are well adapted to other major cotton
producing countries and Australian-developed varieties are exported to those
areas. We sell seed of both conventional and transgenic varieties in Australia.
Through our Australian operations, we are identifying smaller potential export
markets throughout Southeast Asia for our products. The adaptability of our
germplasm must be evaluated in the target markets before such sales can be made.
Turk DeltaPine, Inc. ("Turk DeltaPine"), our wholly-owned subsidiary, through a
Turkish branch, produces, conditions and markets cotton planting seed in Turkey.
In addition, Turk DeltaPine produces conventional cottonseed varieties for sale
in Turkey and Europe.
Employees
As of October 31, 2002, we employed a total of 555 full time employees worldwide
excluding approximately 80 employees of joint ventures. Due to the nature of the
business, we utilize seasonal employees in our delinting plants and our research
and foundation seed programs. The maximum number of seasonal employees
approximates 175 and typically occurs in October and November of each year. We
consider our 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, 1996 and December 1999,
provide for the commercialization of Monsanto's Bollgard ("Bacillus
thuringiensis" or "Bt") gene technology in our varieties in the United States.
The selected Bt gene is from 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. The resulting 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 us for use under the trade name Bollgard. In our primary markets,
the cost of insecticides is a major 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, we 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 D&PL 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 portion of the technology
sublicensing fee, presently approximately 15%. 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 we retain the remainder of 29% for our services. The expiration
date of the Bollgard Agreement is determined by the last to expire of the patent
rights licensed under that agreement. On that basis (unless we terminate sooner,
as is permitted after October 11, 2008), the expiration date of the Bollgard
Agreement will be September 28, 2016.
Pursuant to the Bollgard Agreement, Monsanto must defend and indemnify us
against claims of patent infringement, including all damages awarded or amounts
paid in settlements. Monsanto must also indemnify us 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. The
indemnity from Monsanto only covers performance claims involving failure of
performance of the Bollgard gene and not claims arising from other causes.
Pharmacia remains liable for Monsanto's performance under these defense and
indemnity agreements.
In December 2000, D&PL and Monsanto executed the Bollgard II Gene License and
Seed Services Agreement (the "Bollgard II Agreement") for Monsanto's subsequent
insect resistance product. The Bollgard II Agreement contains essentially the
same terms as the Bollgard Agreement. D&PL will begin commercialization of
Bollgard II once Monsanto obtains U.S. government regulatory approval.
In May 2002, we signed a product development agreement with Syngenta Seed AG
("Syngenta") whereby Syngenta will pay us for development work, including
introgression, testing and evaluation, of Syngenta's insect resistance
technology in our elite cotton germplasm. If appropriate testing indicates that
Syngenta technology combined with our germplasm is competitive and if a
commercialization agreement is reached, our elite varieties containing
Syngenta's technology could potentially be available for introduction to growers
as early as 2004, subject to Syngenta obtaining U.S. government regulatory
approval and other factors.
Herbicide Tolerance for Cotton
In February 1996, D&PL 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 July 1996 and
December 1999, we have also developed transgenic cotton varieties that are
tolerant to Roundup(R), 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 our affiliates the right in the United States to sell cottonseed of
our varieties that contain Monsanto's Roundup Ready gene. The Roundup Ready gene
makes cotton plants tolerant to contact with Roundup herbicide applications made
during a finite early season growth period. 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.
Our portion of the Roundup Ready technology fee varies depending on the
technology fee per acre established by Monsanto. In 2001 and 2002, D&M Partners
paid Monsanto approximately 70% of the Roundup Ready technology fees and we
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. On that basis (unless we terminate sooner, as is permitted after
October 11, 2008), the expiration date of the Roundup Ready Agreement will be
May 27, 2014.
Pursuant to the Roundup Ready Agreement, Monsanto must defend and indemnify us
against claims of patent infringement, including all damages awarded or amounts
paid in settlements. Monsanto will also indemnify us against the cost of
inventory that becomes unsaleable because of patent infringement claims, but
Monsanto is not required to indemnify us against lost profits on such unsaleable
seed. In contrast with the Bollgard Agreement, 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. Pharmacia remains liable for
Monsanto's performance under these defense and indemnity agreements. In both
agreements, generally, we are responsible for varietal/seed performance issues,
and Monsanto is responsible for failure of the genes.
Herbicide Tolerance for Soybeans
In February 1997, D&PL and Monsanto executed a Roundup Ready Soybean License
Agreement which provided for commercialization of Roundup Ready soybean seed.
Effective September 1, 2001, D&PL and Monsanto executed a new Roundup Ready
Soybean License and Seed Services Agreement (the "Roundup Ready Soybean
Agreement") for 2001 and future years. The Roundup Ready Soybean Agreement
grants a non-exclusive license to D&PL to produce and to sell in the United
States soybean seed containing Monsanto's Roundup Ready gene. The Roundup Ready
gene makes soybean plants tolerant to contact with Roundup herbicide
applications when used in accordance with product instructions. Similar to the
Bollgard Agreement and the Roundup Ready Agreement for cotton, farmers must
execute limited use sublicenses in order to purchase soybean seed containing the
Roundup Ready gene. The royalty charged to the seed partners, including D&PL, is
set annually by Monsanto. We receive a portion of the royalty for our services
under the Roundup Ready Soybean Agreement and may receive additional incentives
based on a separate licensee incentive agreement. We have the right to terminate
the Roundup Ready Soybean Agreement at our option upon 90 days notice to
Monsanto; Monsanto may terminate the agreement only for cause. Unless terminated
sooner, the Roundup Ready Soybean Agreement will expire December 31, 2012.
Since 1987, we have conducted research to develop soybean plants that are
tolerant to certain DuPont STS(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 STS
herbicide-tolerant trait is 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
In March 1998, D&PL and the United States of America, as represented by the
Secretary of Agriculture (USDA) were granted United States Patent No. 5,723,765,
entitled "Control Of Plant Gene Expression". Subsequently, two other patents
(United States Patent Nos. 5,925,808 and 5,977,441) were granted under the same
title. The patents for the Technology Protection System resulted from a concept
developed by research scientists employed by both D&PL and the U.S. Department
of Agriculture's Agricultural Research Service ("USDA-ARS"). The patents broadly
cover 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. Another application of
the technology would be to prevent the unlikely possibility of transfer of
transgenes, through pollen, to closely related species of plants. These patents
have 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 giving us the
exclusive right to market this technology. Once developed, we intend licensing
of this technology to be widely available to other seed companies.
In July 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. The patent for the Pollen Transformation System
resulted from a research program conducted pursuant to a Cooperative Research
and Development Agreement between D&PL and the USDA-ARS in Lubbock, Texas. D&PL
and the USDA executed on December 18, 2000 a commercialization agreement,
providing us exclusive rights to market this technology to third parties,
subject to certain rights reserved to the USDA. 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. This patent and the marketing rights apply to all plant
species on which this method of transformation is effective.
The technologies described above resulted from basic research and will require
further development in order to be used in commercial seed. We estimate that it
will be several years before either of these technologies could be available
commercially. In addition, we have rights to other transformation, enabling and
other technologies that are useful to our research and commercial efforts and,
in some cases, may be sublicensed to others.
Other
We have licensing, research and development, confidentiality and material
transfer agreements with providers of technology that we are evaluating for
potential commercial applications and/or introduction. We also contract with
third parties to perform research on our behalf for enabling and other
technologies that we believe have potential commercial applications in varietal
crops around the world.
Commercial Seed
The following table presents the number of commercial cottonseed and soybean
seed varieties we sold in the years ended August 31,:
2001 2002
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Cotton
Conventional 24 24
Bollgard 6 6
Roundup Ready 16 16
Bollgard/Roundup Ready 16 16
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62 62
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Soybeans
Conventional 2 2
Roundup Ready 10 10
STS 2 2
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14 14
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In addition to the above, in 2002, we had 59 experimental cotton varieties and
11 experimental soybean varieties in late stage development prior to
commercialization. In 2001, we had 52 experimental cotton varieties and 11
experimental soybean varieties in late stage development prior to
commercialization.
Seed of all commercial plant species is either varietal or hybrid. Our 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 our 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
technology, such as Bollgard and Roundup Ready, saved from prior crops.
We farm approximately 2,000 acres in the U.S., primarily for research purposes
and for production of cotton and soybean foundation seed. We have annual
agreements with various growers to produce seed for cotton and soybeans. The
growers plant parent seed purchased from us and follow quality assurance
procedures required for seed production. If the grower adheres to our
established quality assurance standards throughout the growing season and if the
seed meets our standards upon harvest, we may be obligated to purchase specified
minimum quantities of seed, usually in our first and second fiscal quarters, at
prices equal to the commodity market price of the seed plus a grower premium. We
then condition the seed for sale.
The majority of our 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
our earnings between quarters. Thus, seed production, distribution and sales are
seasonal and interim results will not necessarily be indicative of our 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. Domestically, the licensing fees charged to farmers for Bollgard and
Roundup Ready cottonseed are based on pre-established planting rates for eight
geographic regions and consider 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. Generally, all other international
revenues from the sale of planting seed, less estimated reserves for returns,
are recognized when the seed is shipped.
Domestically, we promote our cotton and soybean seed directly to farmers and
sell our seed through distributors and dealers. All of our domestic seed
products (including those containing Bollgard and Roundup Ready technologies)
are subject to return and credit risk, the effects of 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 our third and fourth quarters. We provide
for estimated returns as sales occur. To the extent actual returns differ from
estimates, adjustments to our operating results are recorded when such
differences become known, typically in our fourth quarter. All significant
returns occur and are accounted for by fiscal year end.
Outlook
From time to time, we may make forward-looking statements relating to such
matters as anticipated financial performance, existing products, technical
developments, new products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. In order to comply with the terms of the
safe harbor, we note that a variety of factors could cause our actual results
and experience to differ materially from the anticipated results or other
expectations expressed in our forward-looking statements. The risks and
uncertainties that may affect the operations, performance, development and
results of our business include those noted elsewhere in this Item and in "Risks
and Uncertainties" in Item 7.
Availability of Information on Our Website
Additional information (including our annual report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) and 15(d) of the Exchange
Act) is available at our website at www.deltaandpine.com under Investor
Relations, as soon as reasonably practicable after we electronically file such
material with the Securities and Exchange Commission.
ITEM 2. PROPERTIES
We maintain facilities primarily used for research, delinting, conditioning,
storage and distribution. Our world headquarters is located in Scott,
Mississippi. This location is used for corporate offices, quality assurance,
research and development, sales and marketing, seed production, and cottonseed
delinting, conditioning and storage.
Our other owned cottonseed delinting, conditioning and storage facilities in the
United States are in: Eloy, Arizona; Hollandale, Mississippi; and Aiken, Texas.
We own a soybean processing plant in Harrisburg, Arkansas. We also own
cottonseed delinting facilities in Narromine, New South Wales, Australia;
Groblersdal, South Africa; Canas, Costa Rica; Shijiazhuang, Hebei, China
(through a Chinese joint venture); Hefei City, Anhui, China (through a Chinese
joint venture) and Avia Terai, Chaco, Argentina (through an Argentine joint
venture). We also own facilities in Tunica, Mississippi and Chandler, Arizona
that are not currently in use.
Our plant breeders conduct research at eight company-owned facilities in the
United States. We also own a research facility in Australia and lease research
facilities in Brazil and Greece. In connection with our foundation seed program,
we lease land in the United States, Argentina, Australia, Brazil, China, Costa
Rica, South Africa and Turkey.
All owned properties are free of encumbrances. We lease other various warehouse
space. We believe that all of our facilities, including our conditioning,
storage and research facilities, are well maintained and generally adequate to
meet our needs for the foreseeable future. (See "Liquidity and Capital
Resources" in Item 7).
PRINCIPAL COMPANY LOCATIONS, AFFILIATES AND SUBSIDIARIES:
World Headquarters
Scott, Mississippi, USA
Research Centers Operations Facilities
Scott, Mississippi, USA Scott, Mississippi, USA
Winterville, Mississippi, USA Hollandale, Mississippi, USA
Maricopa, Arizona, USA Eloy, Arizona, USA
Tifton, Georgia, USA Harrisburg, Arkansas, USA
Hartsville, South Carolina, USA Aiken, Texas, USA
Hale Center, Texas, USA Lubbock, Texas, USA
Haskell, Texas, USA Avia Terai, Chaco, Argentina
Lubbock, Texas, USA Narromine, New South Wales, Australia
Narrabri, New South Wales, Australia Canas, Costa Rica
Capinopolis, Minas Gerais, Brazil Hefei City, Anhui,
Canas, Costa Rica People's Republic of China
Larissa, Greece Shijiazhuang, Hebei,
People's Republic of China
Groblersdal, South Africa
Foreign Offices
Narrabri, New South Wales, Australia
Uberlandia, Minas Gerais, Brazil
Canas, Costa Rica
Thessaloniki, Greece
Mexicali, Mexico
Mexico City, Mexico
Wassenaar, The Netherlands
Beijing, People's Republic of China
Groblersdal, South Africa
Seville, Spain
Adana, Turkey
Izmir, Turkey
ITEM 3. LEGAL PROCEEDINGS
Product Claims
D&PL and Monsanto are named as defendants in one lawsuit filed in the State of
Texas. The lawsuit was filed in Hockley County, Texas, on April 14, 1999. This
lawsuit was removed to the United States District Court, Lubbock Division, but
subsequently remanded back to the state court. This case was tried to a jury in
August of 2002, and an adverse verdict was returned against D&PL and Monsanto.
There are presently post-trial motions pending and D&PL intends to appeal the
jury's decision. In this case the Plaintiff alleges that certain cottonseed
acquired from the Paymaster division of D&PL did not perform as the farmer had
anticipated and as allegedly represented to him.
D&PL and Monsanto were named as defendants in a 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 gene did not perform as the farmer had
anticipated. D&PL and Monsanto are investigating the claims to determine the
cause or causes of the alleged problem. Pursuant to the terms of the Roundup
Ready Agreement, D&PL has tendered the defense of this claim to Monsanto and
requested indemnity. Pursuant to the Roundup Ready Agreement, Monsanto is
contractually obligated to defend and indemnify D&PL against all claims arising
out of the failure of the Roundup 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.
D&PL and Monsanto and various retail seed suppliers were named as defendants in
six 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; two of the other cases were filed on November 15,
1999, in the Court of Common Pleas of Hampton County, South Carolina. The two
1999 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. The remaining three lawsuits were filed July 29,
2002, in the Court of Common Pleas of Hampton County, South Carolina. The 2002
state court filing of one of those cases (the "Axson case") was removed to
United States District Court for the District of South Carolina, Beaufort
Division, where it is presently pending. In each of these cases the plaintiff
alleges, among other things, that certain seed acquired from D&PL which
contained the Roundup Ready gene and/or the Bollgard gene did not perform as the
farmer had anticipated. These lawsuits also include varietal claims aimed solely
at D&PL. One of the 1999 cases filed in Hampton County as well as the 1999 case
filed in the United States District Court seek class action treatment for all
purchasers of certain D&PL varieties which contain the Monsanto technology. D&PL
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
Agreement and 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.
D&PL was named as a defendant in four 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 second 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 third
lawsuit was filed in the Circuit Court of Holmes County on March 14, 2002. The
suit has now been amended to include fifty-seven individual Plaintiffs who
allege that certain cottonseed sold by D&PL was improperly mixed or blended and
failed to perform as advertised. The fourth lawsuit was filed in the Circuit
Court of Noxubee County on August 12, 2002, and involves a third-party complaint
filed by a local seed distributor who was sued by a local farmer in a complaint
which alleges that certain seed sold by the complaining distributor failed to
comply with federal and state seed law requirements. D&PL is presently
investigating all of these claims to determine the cause or causes of the
alleged problems. None of the Mississippi lawsuits 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 terms of any gene licensing agreement with
Monsanto.
On June 7, 2001, D&PL was named as a defendant in a lawsuit filed in the Circuit
Court of Crockett County, 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 and/or lower than expected tolerance
to Roundup glyphosate. Pursuant to the terms of the Roundup Ready Agreement,
D&PL has tendered the defense of this claim to Monsanto and requested indemnity.
Pursuant to the terms of the Roundup Ready Agreement, Monsanto is contractually
obligated to defend and indemnify D&PL against all claims arising out of the
failure of the Roundup glyphosate tolerance gene. D&PL will have no right of
indemnification from Monsanto, however, for the claims in this litigation
involving varietal characteristics separate from or in addition to the herbicide
tolerance gene and such claims are contained in this litigation.
D&PL and Monsanto were named as defendants in two companion cases filed in the
State of Georgia. One was filed in the United States District Court for the
Middle District of Georgia, Albany Division, on April 5, 2002; and the other
case was filed in the Superior Court of Fulton County, Georgia, on April 29,
2002. The case filed in Fulton County was removed to the United States District
Court on May 28, 2002. Both suits allege that seed purchased by Plaintiffs from
D&PL, and technology purchased from Monsanto, failed to perform as represented
and seek damages for crop losses during the 1998 growing season; the lawsuit
further alleges that certain cotton varieties sold by D&PL suffered from a
disease or malady known as "bronze wilt." Pursuant to the terms of the Roundup
Ready Agreement, D&PL has tendered the defense of these claims to Monsanto and
requested indemnity. Pursuant to the terms of the Roundup Ready Agreement,
Monsanto is contractually obligated to defend and indemnify D&PL against all
claims arising out of the failure of the Roundup glyphosate tolerance gene. D&PL
will have no right of indemnification from Monsanto, however, for any claim
involving varietal characteristics separate from or in addition to the herbicide
tolerance gene and such claims are contained in this litigation.
D&PL was named as a defendant, along with a local seed distributor in a lawsuit
filed in the Superior Court of Colquitt County, 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 gene, no claim
against Monsanto was alleged, nor is there an allegation that Monsanto
technology caused or contributed to Plaintiff's claims. Thus, it does not
presently appear that Monsanto is contractually obligated to defend or indemnify
D&PL in this case. D&PL is presently investigating this claim to determine the
causes of the alleged problems.
D&PL was named as a co-defendant in a case which was originally filed against
Monsanto on December 14, 1998, in the Superior Court of Lee County, Georgia. By
order of the Court, D&PL was added as an additional defendant in May 2002. This
lawsuit alleges a certain cottonseed sold by D&PL containing the Bt gene failed
to perform as advertised and promoted. Pursuant to the terms of the Bollgard
Agreement, D&PL has tendered the defense of this claim to Monsanto and requested
indemnity. Pursuant to the terms of the Bollgard Agreement, Monsanto is
contractually obligated to defend and indemnify D&PL against all claims arising
out of the failure of the Bollgard gene to perform. D&PL will have no right of
indemnification from Monsanto for any claim involving varietal characteristics
separate from or in addition to the Bollgard technology and such claims are
contained in this litigation.
All litigation (25 cases) included in Item 3 of D&PL's Annual Report on Form
10-K filed for the year ended August 31, 2001 in the states of Alabama,
North Carolina and Louisiana has been concluded. Additionally, the following
cases have been resolved in Texas - the three lawsuits filed in Lamb County,
Texas during April 1999, and the case filed in the Judicial District Court of
Dawson County, Texas. These cases were resolved, both individually and
collectively, without a material financial impact on D&PL.
Other Matters
In July 2002, Syngenta Biotechnology, Inc. ("SBI") brought suit in the U.S.
District Court in Delaware alleging that D&PL's making, using, selling and
offering to sell cotton planting seed containing Monsanto's Bt genes, being sold
under the trade name Bollgard, infringes U.S. Patent 6,051,757 entitled
"Regeneration Of Plants Containing Genetically Engineered T-DNA". The suit seeks
a preliminary and permanent injunction against D&PL and Monsanto against further
acts of alleged infringement, contributory infringement and inducement of
infringement of SBI's patent and recovery of damages for unspecified amount
including treble damages on account of the defendants' alleged willful
infringement. D&PL has demanded that Pharmacia Corporation and Monsanto each
agree to defend D&PL in this suit and to indemnify D&PL against damages, if any,
which may be awarded. Monsanto has assumed the defense of D&PL and has filed an
answer generally denying infringement and other claims made in the litigation.
D&PL is assisting Monsanto to the extent reasonably necessary for the conduct of
the litigation.
In May 2002, Pharmacia filed a suit in state court in Missouri against D&PL
International Technology Corp. ("DITC"), D&PL's subsidiary, seeking a
declaratory judgment that it was entitled to invoke the cross purchase provision
in the Operating Agreement for D&M International, LLC, a limited liability
company jointly owned by Pharmacia and DITC. In the alternative, Pharmacia
sought a declaratory judgment that DITC was deemed to have consented to
Pharmacia's transfer of the Operating Agreement to Monsanto and its issuance and
transfer of shares of Monsanto's stock. DITC moved to dismiss on June 6, 2002,
because the case was moot and did not present a justiciable controversy, in that
DITC had already invoked its rights under the cross purchase provision and had
caused Pharmacia's interest in D&M International, LLC to be redeemed. Instead of
answering DITC's motion, on or about June 13, 2002, Pharmacia filed an amended
petition, dropping all of its prior claims, and seeking a declaratory judgment
that DITC has no contractual rights to enjoin Pharmacia from selling its shares
of Monsanto or to seek damages for Pharmacia's prior initial public offering of
Monsanto's shares to the public. DITC moved to dismiss the suit, since it had
never threatened to enjoin the spin-off, and, in the alternative, moved for a
more definite statement. On October 12, 2002, the Court denied DITC's motion to
dismiss but granted DITC's motion for a more definite statement. Pharmacia filed
a Second Amended Petition on October 30, 2002, and DITC filed a motion to
dismiss the Second Amended Petition on November 19, 2002.
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, D&PL, and D&M International, LLC (then jointly owned by Monsanto and
D&PL) under federal antitrust laws and requested class certification. Plaintiffs
claim that defendants have: (1) unlawfully attempted to monopolize the U.S.
cottonseed and herbicide market in violation of ss. 2 of the Sherman Act; (2)
monopolized the U.S. cottonseed and herbicide market in violation of ss. 2 of
the Sherman Act; (3) conspired to unreasonably restrain trade in the U.S.
cottonseed and herbicide market in violation of ss. 1 of the Sherman Act; and
(4) engaged in unlawful tying of cottonseed 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, D&PL 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 D&PL that violates the federal antitrust laws. On December
6, 2001, the United States District Judge, acting on the recommendation of the
Magistrate Judge, granted Monsanto's and D&PL'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 D&PL; however, plaintiffs did not assert
in their Amended Complaint any claims against D&M International, LLC. Both D&PL
and Monsanto moved to dismiss the complaint. The Court granted this motion in
part and denied it in part on May 30, 2002. D&PL filed an answer. On November 1,
2002, the Court granted Monsanto's and D&PL's motion to bifurcate discovery.
Discovery is now in process but it is limited to discovery on class
certification issues to be followed by discovery on the merits. On November 14,
2002, the Court granted plaintiff's motion for voluntary dismissal of the claims
brought on behalf of direct purchasers. The Court also dismissed Counts 1 and 2
of the Amended Complaint, which alleged unlawful monopolization in the
cottonseed and herbicide markets. The remaining claim (brought only on behalf of
the indirect purchasers) relates to allegations about unlawful tying of
cottonseed and herbicide. The plaintiffs have until March 15, 2003, to file a
class certification motion.
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.
A corporation owned by the son of D&PL's former Guatemalan distributor sued in
1989 asserting that D&PL 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 5,292,459 Guatemalan quetzales (approximately
$715,265 at October 31, 2002) and an injunction preventing D&PL 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. D&PL continues to make available seed for sale in Guatemala.
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 D&PL under the May 8, 1998, Merger Agreement. On
December 30, 1999, D&PL 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, D&PL
and Monsanto reached an agreement whereby D&PL would withdraw the December 30
Suit, and Monsanto would immediately pay the $81 million. On January 3, 2000,
Monsanto paid to D&PL a termination fee of $81 million as required by the merger
agreement. On January 18, 2000, D&PL filed a suit (the "January 18 Suit")
reinstating essentially all of the allegations contained in the December 30
Suit. The January 18 Suit by D&PL 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. D&PL 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. D&PL 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 D&PL
suffered no cognizable damages as a result of the failed merger. On December 18,
2000, D&PL 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 D&PL 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, D&PL named both Pharmacia Corp. (the
renamed existing defendant) and Monsanto Company (a newly spun-off subsidiary)
as defendants in the amended complaint. D&PL filed two motions to compel
additional discovery from Monsanto. Pharmacia and Monsanto filed a motion for
summary judgment and a motion to dismiss the added claim of tortious
interference contained in the amended complaint. Pharmacia and Monsanto alleged
that they were entitled to 1) dismissal of the action on the grounds that D&PL'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
D&PL has not suffered any injury as a result of Monsanto's actions. On November
15, 2001, the Circuit Court denied the defendants' motion for summary judgment
on the breach of contract claims, holding that the case presents issues for
trial by jury. The Court also denied defendants' 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 and are commencing
depositions. The judge in the case has ruled that all discovery, depositions,
and pre-trial motions must be completed by September 2003 with a trial date
set for January 2004.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our stock trades on the New York Stock Exchange (the "NYSE") under the trading
symbol DLP. The range of closing prices for these shares for the last two fiscal
years, as reported by the NYSE, was as follows:
Common Stock Data 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
-----------------
----------- ----------- ------------ -----------
FYE August 31, 2001
Market Price Range - Low $21.75 $20.00 $22.15 $18.65
- High 26.88 25.55 26.80 25.09
FYE August 31, 2002
Market Price Range - Low $16.23 $18.94 $17.49 $17.49
- High 21.22 22.63 21.47 20.13
Annual dividends of $0.15 and $0.20 per share were paid in 2001 and 2002,
respectively. The Board of Directors anticipates that quarterly dividends of
$0.05 per share will continue to be paid in the future; however, the Board of
Directors reviews this policy quarterly. Aggregate dividends paid on common
shares in 2002 were $7.7 million and should approximate $7.6 million in 2003.
Aggregate dividends paid on preferred shares in 2002 were $0.2 million and
should approximate $0.2 million in 2003.
On October 31, 2002, there were approximately 6,000 shareholders of our
38,148,505 outstanding common shares.
Equity Compensation Plan Information
Number of securities
to be issued upon Weighted average Number of securities
exercise of exercise price remaining available for
outstanding options, of outstanding options, future issuance under equity
Plan category warrants and rights warrants and rights compensation plan
------------- ------------------- ------------------- -----------------
Equity compensation plans
approved by security holders 4,037,819 $ 18.49 1,281,394
Equity compensation plans not
approved by security holders - - -
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS (In thousands, except per share amounts)
---------------------------------------------------------------------------------------------------------------------
As of and for the Year Ended August 31,
---------------------------------------------------------------------------------------------------------------------
1998 1999 2000 2001 2002
----------- ------------ ----------- ----------- ------------
Operating Results:
Net sales and licensing fees $ 192,339 $ 260,465 $ 301,181 $ 305,806 $ 257,807
Special charges and unusual
items(1) (22,662) (29,884) 71,233 (6,301) -
Net income 1,879 7,573 79,326 32,307 30,339
Balance Sheet Summary:
Current assets $ 174,502 $ 217,543 $ 313,701 $ 337,737 $ 308,468
Current liabilities 116,136 174,947 215,315 208,041 174,124
Working capital 58,366 42,596 98,386 129,696 134,344
Total assets 251,791 295,758 390,134 411,521 383,142
Long-term debt 47,070 17,000 2,482 2,836 1,176
Stockholders' equity 80,651 89,404 159,628 188,408 202,207
Per Share Data:
Net income - Diluted $ 0.04 $ 0.18 $ 1.98 $ 0.81 $ 0.76
Book value 2.12 2.33 4.15 4.90 5.27
Cash dividends per common share 0.12 0.12 0.12 0.15 0.20
Weighted average number of
shares used in net income per share
calculation -
Diluted 40,839 40,973 40,159 40,111 39,781
------------------------------------------------------------------------------------------------------------------------
(1) In 1998, we reported (a) a $17.5 million special charge for inventory
write-offs due to a reduction in cotton acreage in 1998, the realignment of
our product line to seed with new technologies and the recall of certain
products and (b) $5.1 million in costs associated with our evaluation of
various strategic alternatives including the Monsanto merger. In 1999, we
reported (a) special charges for inventory write-offs of $15.2 million
resulting from our decision to purchase additional seed in 1999 to ensure
that ample seed of both transgenic and conventional varieties were
available and due to lower than expected soybean sales, (b) special charges
of approximately $9.0 million related to the now failed acquisition by
Monsanto, (c) nonrecurring charges for severance pay and relocation
expenses of $2.0 million related to a reorganization of the sales and
marketing and technical services divisions and (d) the loss on the disposal
of fixed assets and other special charges of $3.7 million. In 2000, we
reported the $81 million merger termination fee, net of related expenses as
an unusual income item. In 2001, we reported (a) a $3.0 million special
charge for the closing of a delinting plant and a write down of other
long-lived assets to be disposed of and (b) a $3.3 million charge for
severance pay related to the plant closing and reductions in operations and
corporate staffs.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The decrease in planted cotton acreage in the U.S. during 2002 adversely
impacted our results for the fiscal year ended August 31, 2002. In a report
dated June 28, 2002, the United States Department of Agriculture reported
planted cotton acreage in the U.S. was expected to total 14.4 million acres.
This represented an 8% drop from the previous year's estimate of 15.6 million
acres. However, our estimate of actual planted cotton acreage in 2002 ranges
from 13.5 to 14.0 million acres. The combined effect of low cotton commodity
prices and relatively higher soybean and corn prices, along with the late
enactment of the Farm Security and Rural Investment Act of 2002 (the "2002 Farm
Bill") on May 13, 2002, resulted in many growers not planting cotton for the
2002 crop year. The late passage of the 2002 Farm Bill coupled with lower
cotton prices were especially felt in areas where stripper cotton varieties are
grown. Because the revenue potential per acre for stripper cotton varieties is
significantly lower than the potential for picker cotton varieties, farmers in
the stripper areas used cost cutting measures, including reduced seeding rates
per acre and planting conventional seed and/or farmer-saved seed. Our earnings
for fiscal 2002 were also negatively impacted by crop destruct program claims,
which were significantly higher than in the prior year due to wet and unusually
cool conditions that existed in the Mid-South early in the growing season. Under
the crop destruct program, if a farmer plants transgenic seed and his crop is
destroyed within sixty days of planting, then Monsanto, after field inspection,
will forgive or waive the technology fee on the affected acreage. In addition,
seed production problems early in the year related to certain Roundup Ready
cottonseed varieties reduced seed availability which also affected our 2002
earnings, since we were unable to fill the demand for certain varieties. On a
positive note, we were able to increase our gross margin percentage during
fiscal 2002 compared to fiscal 2001, principally due to price increases for
certain of our cotton planting seed. The price increases, coupled with the
factors noted above, contributed to a reduction in unit sales and market share.
These price increases were partially offset by higher costs for fuzzy cotton
seed, our raw material.
Results from our international operations were negatively affected by lower
planted acreage in key cotton producing countries where we operate. We have also
felt the impact of farmers planting saved seed and/or counterfeit seed in China
and Argentina.
Soybean sales for the year exceeded both 2001 sales and 2002 expectations, due
primarily to improved product performance in 2001, more competitive pricing and
marketing programs in 2002 and a 5% increase in soybean acreage in our primary
marketing area.
Strategic Transactions and Events
In May 2002, we signed a product development agreement with Syngenta whereby
Syngenta will pay us for development work, including introgression, testing and
evaluation, of Syngenta's insect resistance technology in our elite cotton
germplasm. If appropriate testing indicates that Syngenta technology combined
with our germplasm is competitive and if a commercialization agreement is
reached, our elite varieties containing Syngenta's technology could potentially
be available for introduction to growers as early as 2004, subject to Syngenta
obtaining U.S. government regulatory approval and other factors.
In May 2002, we established DeltaMax Cotton, LLC, a limited liability company
jointly owned with Verdia, a wholly-owned subsidiary of Maxygen, Inc. DeltaMax
Cotton, LLC was formed to create, develop and commercialize value-enhancing
traits for the cottonseed market that will complement and/or compete with traits
available today. D&PL and Verdia each own 50% of DeltaMax Cotton, LLC and we
expect to invest in the aggregate up to $20 million over the next five to eight
years to fund our portion of DeltaMax Cotton, LLC, which includes estimated
expenses of $2.5 million in 2003, and $0.3 million in 2002.
In May 2002, we acquired the 50% interest in D&M International, LLC we did not
own from Pharmacia for approximately $4.8 million. Pharmacia activated a
cross-purchase provision in the operating agreement for D&M International, LLC,
and we elected to have D&M International, LLC redeem Pharmacia's 50% interest in
D&M International, LLC, rather than having D&M International, LLC redeem our
interest.
In June 2002, we announced that Murray Robinson would retire as President and
Chief Executive Officer effective August 31, 2002, and that W.T. Jagodinski, who
was named Executive Vice President effective June 1, 2002, would succeed
Robinson as President and Chief Executive Officer, effective September 1, 2002.
In addition, Rick Greene, D&PL Vice President of Business Development, was named
Vice President-Finance, Treasurer and Assistant Secretary, effective June 1,
2002. Effective September 1, 2002, W. T. Jagodinski became a member of the D&PL
Board of Directors. His term will last until D&PL's 2003 Annual Meeting when
shareholders will vote upon his re-election. His addition to the Board brings
the total number of directors to seven.
Other Matters
We completed the plant closing and reorganization of the corporate staff
announced in August 2001, which resulted in us taking a $6.3 million charge in
the prior year. Essentially all severance payments were made by the end of the
prior fiscal year. The changes were made to reduce plant capacity, production
costs, and corporate overhead by eliminating positions and realigning our
soybean breeding efforts.
With respect to our suit against Pharmacia and Monsanto Company, the parties
remain in discovery. The judge in the case has ruled that all discovery,
depositions, and pre-trial motions must be completed by September 2003 with a
trial date set for January 2004. Our earnings for the 2002 fiscal year
were impacted by legal expenses of $0.08 per share during the year,
as the discovery and other pre-trial activities have intensified.
As discussed in Item 3 and the footnotes to the financial statements,
we collected in fiscal 2000 (after we filed a lawsuit) the $81 million
termination fee and recorded it net of related expenses as an unusual item.
Outlook
Future growth in sales and earnings will be dependent on (a) cotton acreage in
the U.S. and around the world, (b) our ability to continue to profitably expand
our international operations, (c) the successful development and launch of new
technologies obtained from third parties with fee sharing arrangements that are
more beneficial to us than current fee sharing arrangements and (d) our ability
to successfully develop and launch technologies that we will own or have more
control over (such as those being developed by DeltaMax Cotton, LLC). Due to our
market position in the U.S., U.S. cotton acreage has a significant effect on our
sales and earnings. Although we expect the 2002 Farm Bill to stabilize (and
potentially increase) U.S. cotton acreage, other factors such as weather and
commodity prices at or near the time farmers plant will have a significant
effect on farmer planting decisions and, ultimately, our operating results.
As we have previously announced, we expect to provide 2003 earnings guidance
later this year. Even though we believe the 2002 Farm Bill will have a positive
effect on acreage, it is too early to predict with confidence the level of
cotton acreage, since the Farm Bill is only one of the many elements a farmer
considers when making planting decisions.
Internationally, we continue to expand our global reach and we seek to improve
the operating results of our existing ex-U.S. operations. In 2002, planted
cotton acreage declined in many key international markets where we operate due
to low fiber prices. In fiscal 2002, we acquired the 50% interest in D&M
International, LLC from Pharmacia. This strategic step will make it easier for
us to introduce new technologies from third parties when they become available
and gain regulatory approval in the countries where the joint ventures,
partially owned by D&M International, LLC, operate. We will continue to develop
new businesses in markets such as India, Pakistan and portions of Africa.
During the fourth quarter of fiscal 2001, we announced that we had signed
Letters of Intent with two parties in China to form two new joint ventures
there, one each in Hubei and Henan provinces. However, in April 2002, China
announced rules prohibiting new foreign investment in seed companies that intend
to sell genetically modified seed which will restrict the ability of non-Chinese
companies, including us, from investing in such joint ventures. We have,
however, signed a distribution agreement with a party in the Henan province and
will be distributing seed there in fiscal 2003 from our joint venture in Hebei
province, Ji Dai. We expect to continue to expand our business in China through
our existing joint ventures, Ji Dai and An Dai.
We continue to review and evaluate alternative sources and types of technology
that could bring valuable products to farmers. As agreements are reached with
those parties, announcements will be made. We believe we are uniquely positioned
to rapidly introduce new technologies to both U.S. and ex-U.S. cotton farmers
due to the strength and breadth of our breeding programs and germplasm base, and
our technical services capabilities, know-how, brand recognition and market
position.
Share Repurchase Program/Dividend Policy
Our Board of Directors has previously approved a common stock repurchase plan of
up to $50 million. We expect to continue purchasing shares in the open market
subject to market price and other considerations. Currently, the quarterly
dividend is $0.05 per share. The Board reviews the dividend policy quarterly.
Assuming the dividend rate is maintained through 2003, the aggregate payments
will be $7.6 million to the holders of the 38.1 million common shares
outstanding and $0.2 million to the holder of the 1.1 million preferred shares
outstanding. See "Risks and Uncertainties" located in this Item 7.
Net Sales and Licensing Fees
In 2002, our consolidated net sales and licensing fees decreased 15.7% to $257.8
million from 2001 sales of $305.8 million. This decrease was mainly attributable
to (a) a reduction in planted cotton acreage in the U.S. that reduced domestic
sales to $225.4 million in 2002 from $261.9 million in 2001, (b) a reduction in
international sales to $32.4 million in 2002 from $43.9 million in 2001, (c) a
loss in market share caused primarily by a price increase and the inability to
fill demand for certain Roundup Ready picker cotton varieties, and (d) higher
marketing program costs. The effects of these decreases were partially offset by
an increase in soybean seed sales and licensing fees, which increased
approximately 10% in 2002 from 2001. Sales of transgenic cotton seed comprised
approximately 93% of total domestic cotton seed sales, up from approximately 91%
in 2001.
In 2001, our consolidated net sales and licensing fees increased 1.5%
to $305.8 million from 2000 sales of $301.2 million. This increase was primarily
the result of (a) a continued market penetration of our stacked gene products in
the domestic segment, (b) price increases in the domestic cotton segment, (c)
increased export sales to Mexico, Greece, and Brazil and (d) increased sales by
our joint ventures in China and Brazil. The effects of these increases were
partially offset by lower than expected sales of soybeans. In 2001, domestic
transgenic cottonseed sales comprised approximately 91% of total domestic unit
sales of cottonseed, compared to approximately 89% in 2000. International sales
increased to $43.9 million in 2001 from $31.0 million in 2000 due to sales
increases in Mexico, Greece, China, and Brazil. In 2001, soybean sales and
licensing fees decreased 34% from 2000.
Gross Profit
Our consolidated gross profit decreased to $92.5 million in 2002 compared to
$105.6 million in 2001. Consolidated gross profit as a percentage of
consolidated net sales and licensing fees increased to 36% in 2002 from 35% in
2001. This was primarily attributable to price increases for certain of our
cotton seed, partially offset by higher costs of fuzzy seed.
Our consolidated gross profit increased to $105.6 million in 2001 compared to
$99.4 million in 2000. This increase is primarily attributable to continued
penetration of transgenic cottonseed varieties in the U.S., a price increase in
the U.S. market, and increased sales in our international segment as discussed
above, the positive effects of which were partly offset by lower soybean
margins.
Operating Expenses
Operating expenses decreased to $42.7 million in 2002 from $47.6 million in
2001. The decrease was mainly attributable to cost savings realized from the
plant closing and staff reductions announced in 2001, as well as reduced health
insurance claims and a reduction in the discretionary bonus pool.
Operating expenses before special charges increased to $47.6 million in 2001
from $46.0 million in 2000. This increase is primarily due to higher general and
administrative and research costs which were partially offset by continued cost
savings generated from our 1999 reorganization of the sales and marketing staff
and the related synergies of our advertising and promotional efforts.
Research and Development Expenses
Research and development expenses decreased 9.0% to $18.1 million in 2002 from
$19.9 million in 2001. The restructuring of third-party research contracts, as
well as cost savings realized from the reorganization announced in 2001
contributed to the decrease experienced in 2002.
Research and development expenses increased 6.6% to $19.9 million in 2001 from
$18.7 million in 2000. The increase was primarily attributable to additional
breeding programs in Georgia and Texas, advanced breeding programs, evaluation
of new technologies, and additional international seed testing.
Selling Expenses
Selling expenses decreased 17.8% to $10.6 million in 2002 from $12.9 million in
2001. The reorganization announced in 2001 produced cost savings in the selling
function, as did a reduction in our advertising expenditures.
Selling expenses decreased 9.3% to $12.9 million in 2001 from $14.2 million in
2000. This decrease was primarily attributable to our previous reorganization of
the sales and marketing staff and the related synergies of combining our
advertising and promotional efforts.
General and Administrative Expenses
General and administrative expenses decreased 5.3% to $14.0 million in 2002 from
$14.8 million in 2001. This decrease was mainly attributable to a reduction in
health insurance claims and a decrease in the discretionary bonus pool, offset
by higher legal costs primarily related to structuring and negotiating
agreements to access and license new technologies.
General and administrative expenses increased 12.9% to $14.8 million in 2001
from $13.1 million in 2000. The increase primarily consisted of an increase in
property, casualty and health insurance costs.
Special Charges and Unusual Item
In 2001, in connection with the closing of our Chandler, Arizona delinting
facility and the reduction in our domestic operations and corporate staffs, we
recorded a $6.3 million charge associated with these actions. Of the $6.3
million, $3.0 million was related to the write down of fixed assets and $3.3
million to severance pay and related benefits. No special charges were recorded
in 2002.
In fiscal 2000, we reported, as an unusual income item, the $81 million merger
termination fee, net of related expenses, which was paid by Monsanto to us
pursuant to the terms of the May 8, 1998, merger agreement.
Interest Income/Expense
Net interest income decreased to $1.2 million in 2002, compared to net interest
income of $3.5 million in 2001. In 2002, interest income was $2.3 million and
interest expense was $1.1 million. Lower interest rates earned on our cash
resulted in lower interest earnings during 2002. International interest expense
increased primarily due to an increase in interest rates incurred on debt at our
joint venture in Argentina.
Net interest income was $3.5 and $0.9 million in 2001 and 2000, respectively. In
2001, interest income was $4.5 million and interest expense was $1.0 million. In
2000, interest income was $2.6 million and interest expense was $1.7 million.
The interest income was primarily earned on cash generated from operating
activities and the $81 million merger termination fee collected from Monsanto in
early 2000.
Net Income and Earnings Per Share
Net income after special charges and unusual items applicable to common shares
was $30.1, $32.1 million and $79.2 million in 2002, 2001 and 2000, respectively.
Net income per share (diluted) after special charges and unusual items was
$0.76, $0.81 and $1.98 in 2002, 2001 and 2000, respectively.
Net income per share (diluted) before legal, special charges and unusual items
was $0.84, $0.95 and $0.90 in 2002, 2001 and 2000, respectively. Legal expenses
related to our suit against Pharmacia and Monsanto totaled $0.08 per diluted
share in 2002 and $0.04 per diluted share in 2001. The cost of the 2001
reorganization was $0.10 per share. The number of shares used in diluted
earnings per share calculations was 39.8 million, 40.1 million, and 40.2 million
in 2002, 2001 and 2000, respectively.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
Overview
Management's discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes appearing in Item 8 of this Annual Report on Form
10-K. The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period.
We have identified below the accounting policies that involve those estimates
and assumptions that we believe are critical to an understanding of our
financial statements. Our management has discussed the development and selection
of each critical accounting estimate with the Audit Committee of our Board of
Directors, and the Audit Committee has reviewed the related disclosures below.
Since application of these accounting policies involves the exercise of judgment
and use of estimates, actual results could differ from those estimates.
Revenue Recognition
As discussed elsewhere in this document, all of our domestic seed products
(including those containing Bollgard and Roundup Ready technologies) are subject
to return and credit risk, the effects of 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 our third and fourth quarters. We provide for
estimated returns as sales occur. To the extent actual returns differ from
estimates, adjustments to our operating results are recorded when such
differences become known, typically in our fourth quarter. All significant
returns occur or are accounted for by fiscal year end. Therefore, the
application of this estimate primarily affects our quarterly information.
We also offer various sales incentive programs for seed and participate in such
programs related to the Bollgard and Roundup Ready technology fees offered by
Monsanto. Generally, under these programs, if a farmer plants his seed and the
crop is lost (usually due to weather by a certain date) a portion of the price
of the seed and the technology fees is forgiven or rebated to the farmer. The
amount of the refund and the impact to D&PL depends on whether the farmer can
replant the crop that was destroyed. We record estimates monthly to account for
these events, the majority of which occur during the second and third quarters.
Essentially all material claims under these programs have occurred or are
accounted for by fiscal year end.
Provision for Damaged, Obsolete and Excess Inventory
Each year, we record a provision related to inventory based on our estimate of
seed that will not pass our quality assurance ("QA") standards at year end, or
is deemed excess based on our desired seed stock level for a particular variety
("dump seed"). Seed can fail QA standards based on physical defects (i.e., cut
seed, moisture content, discoloration, etc.), germination rates, or transgenic
qualities. The amount recorded as inventory provision in a given year is
calculated based on the total quantity of inventory that has not passed QA
standards at any fiscal period end, any seed that is expected to deteriorate
before it can be sold and seed deemed to be excess and is valued at
the average cost of inventory. In establishing the provision we consider the
scrap value of the seed to be disposed. An initial estimate of the needed
provision is made at the beginning of each year and recorded ratably over the
course of the year. Adjustments are made monthly, as necessary.
See Note 2 of the Notes to Consolidated Financial Statements in Item 8 for
further details about inventory reserves.
Deferred Income Taxes
Deferred income taxes are estimated based upon temporary differences between the
income and losses that we report in our financial statements and our taxable
income and losses as determined under applicable tax laws. We estimate the value
of deferred income taxes based upon existing tax rates and laws, and our
expectations of future earnings. We estimate our composite statutory income tax
rate to be approximately 38%.
We are required to evaluate the likelihood of our ability to generate sufficient
future taxable income that will enable us to realize the value of our deferred
tax assets. If, in our judgment, we determine that we will not realize deferred
tax assets, then valuation allowances are recorded. As of August 31, 2002, we
had recorded deferred tax assets of approximately $8.1 million. We estimate that
our deferred tax assets will be realized, therefore we have not recorded any
valuation allowances as of August 31, 2002.
We use management judgment and estimates when estimating deferred taxes. If our
judgments and estimates prove to be inadequate, or if certain tax rates and laws
should change, our financial results could be materially adversely impacted in
future periods.
LIQUIDITY AND CAPITAL RESOURCES
In the United States, we purchase seed from contract growers in our 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, if necessary, normally begin in the middle of the third fiscal
quarter and are typically completed by the first fiscal quarter of the following
year. In some cases, we offer customers financial incentives to make early
payments. To the extent we attract early payments from customers, bank
borrowings, if any, are reduced.
In the U. S., we record revenue and accounts receivable for licensing fees on
Bollgard and Roundup Ready seed sales upon shipment, usually in our second and
third quarters. Receivables from seed sales are generally due from May to July.
In September, the licensing fees are due at which time we receive payment. We
then pay Monsanto its royalty, which is recorded as a component of cost of
sales, for the Bollgard and Roundup Ready licensing fees. As a result of the
timing of these events, licensing fees receivable and royalties payable peak at
fiscal year end.
The seasonal nature of our business significantly impacts cash flow and working
capital requirements. Historically, we have maintained credit facilities, and
used early payments by customers and cash from operations to fund working
capital needs. In the past, we have borrowed on a short-term basis to meet
seasonal working capital needs. However, in 2002, we used cash generated from
operations and other available cash to meet working capital needs. We continue
to evaluate potential uses of our cash for purposes other than for working
capital needs. One potential such use is the acquisition or funding of
alternative technologies (such as DeltaMax Cotton, LLC) that could be used to
enhance our product portfolio and ultimately our long-term earnings potential.
Another potential use is the repurchase in the open market of our shares
pursuant to our previously announced share repurchase program. For the twelve
months ended August 31, 2002, we repurchased 539,200 shares at a cost of
approximately $9.96 million. Once the evaluation of certain transactions that
are currently being considered is brought to conclusion, we may consider other
potential uses of the remaining cash, including repurchasing shares more
aggressively depending on market considerations and other factors.
In April 1998, we entered into a syndicated credit facility with three lenders,
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 D&PL to
pay facility or commitment fees and to comply with certain financial covenants.
This agreement expired on April 1, 2001. D&PL and the lenders are negotiating a
replacement facility that will provide for aggregate borrowings sufficient to
meet working capital needs that will contain terms and conditions similar to the
1998 facility.
Capital expenditures were $8.3 million, $7.5 million, and $7.1 million in fiscal
2002, 2001 and 2000, respectively. We anticipate that capital expenditures will
approximate $8.0 to $10.0 million in 2003. The Board of Directors anticipates
that quarterly dividends of $0.05 per share will continue to be paid in the
future; however, the Board of Directors reviews this policy quarterly. Aggregate
preferred and common dividends paid in 2002 were $7.9 million and should
approximate $7.8 million in 2003.
Cash provided from operations, cash on hand, early payments from customers and
borrowings under a loan agreement, if necessary, should be sufficient to meet
the Company's 2003 working capital needs.
In February 2000, the Board of Directors authorized a program for the repurchase
of up to $50 million of our common stock. The shares repurchased under this
program are to be used to provide for option exercises, conversion of our Series
M Convertible Non-Voting Preferred shares and for other general corporate
purposes. At August 31, 2002, we had repurchased 992,900 shares at an aggregate
purchase price of approximately $17.7 million under this program. We purchased
539,200 shares at an aggregate purchase price of $9.96 million under this plan
during the year ended August 31, 2002. Between September 1, 2002 and October 31,
2002, we repurchased 61,400 shares at an aggregate purchase price of $1.1
million.
RISKS AND UNCERTAINTIES
From time to time, we 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, we note that a variety of factors could cause
our actual results and experience to differ materially from the anticipated
results or other expectations expressed in our forward-looking statements. The
risks and uncertainties that may affect the operations, performance, development
and results of our business include those noted elsewhere in this filing and the
following:
Demand for our seed will be affected by government programs and policies
and 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, cottonseed
oil, 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 our 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. Our seed products and technologies contained therein may
encounter substantial competition from technological advances by others or
products from new market entrants. Many of our competitors are, or are
affiliated with, large diversified companies that have substantially
greater resources than we.
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 our domestic and international
operations include the use of and the acceptance of products that were
produced from plants that have been 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 our international operations.
The publicity related to genetically modified organisms ("GMOs") or
products made from plants that contain GMOs may have an effect on our sales
in the future. In 2002, approximately 93% of our cottonseed that was sold
in the United States contained either or both of Monsanto's Bollgard and
Roundup Ready gene technologies, and 89% of our soybean seed sales
contained the Roundup Ready gene technology. Although many farmers have
rapidly adopted these technologies, the concern of some customers and
governmental entities 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 we operate and because of factors within the
particular international markets we target, 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, and conflicts between major cotton producing nations
may serve to further complicate our ability to execute our long range
ex-U.S. business plans because those plans include future expansion into
Uzbekistan, Pakistan and India.
Overall profitability will depend on the factors noted above as well as
weather conditions, government policies in all countries where we sell
products and operate, worldwide commodity prices, our ability to
successfully open new international markets, our 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 D&PL are working, our technology partners' ability to successfully
defend challenges to proprietary technologies licensed to us and our
ability to produce sufficient commercial quantities of high quality
planting seed of these products. Any delay in or inability to successfully
complete these projects may affect future profitability.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 145, "Accounting for
Costs Associated with Exit or Disposal Activities," addresses financial
accounting and reporting for costs associated with exit or disposal activities.
This statement is effective for exit or disposal activities that are initiated
after December 31, 2002, with early application encouraged. Therefore, we must
adopt this statement no later than January 1, 2003. We have not determined the
impact, if any, that this statement will have on our consolidated financial
position or results of operations.
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.
Therefore, we adopted this statement September 1, 2002. The adoption of this
statement did not have a material impact on our 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, we adopted this statement September 1, 2002. The adoption of this
statement did not have a material impact on our consolidated financial position
or results of operations.
SFAS No. 142, "Goodwill and Other Intangible Assets," addresses the financial
accounting and reporting for acquired goodwill and other intangible assets. We
adopted SFAS 142 effective September 1, 2001, at which time all goodwill
amortization ceased (fiscal 2002 goodwill amortization would have been
approximately $160,000). During the second quarter of fiscal 2002, recorded
goodwill attributable to the domestic segment was tested for impairment by
comparing the fair value to its carrying value. Based on our initial impairment
test, management has determined that none of the goodwill recorded was impaired.
SFAS No. 141, "Business Combinations," requires all business combinations
initiated after June 1, 2001 to be accounted for under the purchase method. SFAS
No. 141 also sets forth guidelines for applying the purchase method of
accounting in the determination of intangible assets, including goodwill
acquired in a business combination, and expands financial disclosures concerning
business combinations consummated after June 1, 2001. The impact of this
statement did not have an effect on our consolidated financial position or
results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have exposure relative to fluctuations in the price of soybean raw material
inventory, foreign currency fluctuations and interest rate changes. From time to
time we enter into various agreements that are considered derivatives to reduce
our commodity price risk. During the year ended August 31, 2002, derivative
instruments have not been used to manage foreign currency or interest rate
risks, except in a specific instance in which one of our foreign subsidiaries
entered into foreign currency forward exchange contracts to mitigate our risk
associated with currency fluctuations in foreign currency denominated debt. We
do not enter into speculative hedges or purchase or hold any derivative
financial instruments for trading purposes.
A discussion of our accounting policies related to derivative financial
instruments is included in Note 1 of the Notes to Consolidated Financial
Statements in Item 8. Further information on our exposure to market risk is
included in Note 14 of the Notes to Consolidated Financial Statements in Item 8.
The fair value of derivative commodity instruments outstanding as of August 31,
2002, was $300,000. A 10% adverse change in the underlying commodity prices upon
which these contracts are based would result in a $300,000 loss in future
earnings, arising from these contracts (not counting the gain on the underlying
commodities).
Our 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.
We conduct non-U.S. operations through subsidiaries and joint ventures in,
primarily, Argentina, Australia, Brazil, China, South Africa and Turkey. At
August 31, 2002, 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.
We utilize fixed and variable-rate debt to maintain liquidity and fund our
business operations, with the terms and amounts based on business requirements,
market conditions and other factors. At August 31, 2002, a 100 basis point
change in interest rates (with all other variables held constant) on the portion
of our debt with variable interest rates would not result in a material change
to our interest expense or cash flow.
For the year ended August 31, 2002, a 10% adverse change in the interest rate
that we earned on our excess cash that we invested would not have resulted in a
material change to our interest expense or cash flow.
PART II
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Financial Statements Page(s)
The following consolidated financial statements of Delta and Pine Land Company
and subsidiaries are submitted in response to Part II, Item 8:
Independent Auditors' Report...........................................................................26
Report of Independent Public Accountants...............................................................27
Management's Report....................................................................................28
Consolidated Statements of Income - for each of the three years in the
period ended August 31, 2002.......................................................................29
Consolidated Balance Sheets - August 31, 2001 and 2002.................................................30
Consolidated Statements of Cash Flows - for each of the three years in the
period ended August 31, 2002........................................................................31
Consolidated Statements of Stockholders' Equity - for each of the three years
in the period ended August 31, 2002.................................................................32
Notes to Consolidated Financial Statements.............................................................33
32
Independent Auditors' Report
The Board of Directors of
Delta and Pine Land Company:
We have audited the accompanying consolidated balance sheet of Delta and Pine
Land Company and subsidiaries as of August 31, 2002, and the related statements
of income, changes in stockholders' equity and comprehensive income, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The consolidated financial
statements of Delta and Pine Land Company as of and for the years ended August
31, 2000 and 2001 were audited by other auditors who have ceased operations.
Those auditors expressed an unqualified opinion on those financial statements in
their report dated October 26, 2001.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2002 financial statements referred to above present fairly,
in all material respects, the financial position of Delta and Pine Land Company
as of August 31, 2002, and the results of its operations and its cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America.
/s/ KPMG LLP
Memphis, Tennessee
October 25, 2002
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND THE SHAREHOLDERS OF DELTA AND PINE LAND COMPANY:
We have audited the accompanying consolidated balance sheets of DELTA AND PINE
LAND COMPANY (a Delaware corporation) and subsidiaries as of August 31, 2000 and
2001, and the related consolidated statements of income, cash flows and
stockholders' equity for each of the three years in the period ended August 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Delta and Pine Land
Company and subsidiaries as of August 31, 2000 and 2001, and the results of its
operations and its cash flows for each of the three years in the period ended
August 31, 2001, in conformity with accounting principles generally accepted in
the United States.
Arthur Andersen LLP
Memphis, Tennessee,
October 26, 2001.
This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with Delta and Pine Land Company's filing on Form 10-K for the year
ended August 31, 2001. This audit report has not been reissued by Arthur
Andersen LLP in connection with this filing on Form 10-K. See Exhibit 23.02 for
further discussion.
MANAGEMENT'S REPORT:
D&PL is responsible for preparing the financial statements and related
information appearing in this report. Management believes that the financial
statements present fairly D&PL's financial position, its results of operations
and its cash flows in conformity with accounting principles generally accepted
in the United States. In preparing its financial statements, D&PL is required to
include amounts based on estimates and judgments that it believes are reasonable
under the circumstances.
D&PL maintains accounting and other systems designed to provide reasonable
assurance that financial records are reliable for purposes of preparing
financial statements and that assets are properly accounted for and safeguarded.
Compliance with these systems and controls is reviewed by executive management
and the accounting staff. Limitations exist in any internal control system,
recognizing that the system's cost should not exceed the benefits derived.
The Board of Directors pursues its responsibility for D&PL's financial
statements through its Audit Committee, which is composed solely of directors
who are not Company officers or employees. The Audit Committee meets at least
annually with the independent auditors and management. The independent auditors
have direct access to the Audit Committee, with and without the presence of
management representatives.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED AUGUST 31,
(In thousands, except per share amounts)
2000 2001 2002
------------- ------------- ------------
NET SALES AND LICENSING FEES $ 301,181 $ 305,806 $ 257,807
COST OF SALES (201,814) (200,236) (165,258)
------------- ------------- ------------
GROSS PROFIT 99,367 105,570 92,549
------------- ------------- ------------
OPERATING EXPENSES:
Research and development 18,685 19,924 18,122
Selling 14,198 12,878 10,591
General and administrative 13,104 14,797 14,006
------------- ------------- ------------
45,987 47,599 42,719
SPECIAL CHARGES AND UNUSUAL INCOME ITEM 71,233 (6,301) -
------------- ------------- ------------
OPERATING INCOME 124,613 51,670 49,830
INTEREST INCOME, NET 852 3,455 1,247
OTHER INCOME (EXPENSE) 67 (4,255) (6,468)
EQUITY IN NET LOSS OF AFFILIATE - - (305)
MINORITY INTEREST IN LOSS/(EARNINGS) OF SUBSIDIARIES 909 (390) 2,729
------------- ------------- ------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 126,441 50,480 47,033
PROVISION FOR INCOME TAXES (44,150) (18,173) (16,694)
------------- ------------- ------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
FOR START-UP COSTS 82,291 32,307 30,339
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR START-UP
COSTS, NET OF TAX (2,965) - -
------------- ------------- ------------
NET INCOME 79,326 32,307 30,339
DIVIDENDS ON PREFERRED STOCK (128) (160) (213)
------------- ------------- ------------
NET INCOME APPLICABLE TO COMMON SHARES $ 79,198 $ 32,147 $ 30,126
============= ============= ============
BASIC EARNINGS PER SHARE $ 2.06 $ 0.84 $ 0.79
============= ============= ============
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN PER SHARE CALCULATIONS - BASIC 38,496 38,473 38,362
============= ============= ============
DILUTED EARNINGS PER SHARE $ 1.98 $ 0.81 $ 0.76
============= ============= ============
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN PER SHARE CALCULATIONS - DILUTED 40,159 40,111 39,781
============= ============= ============
The accompanying notes are an integral part of these consolidated statements.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 31,
(In thousands, except share and per share amounts)
2001 2002
--------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 114,003 $ 109,091
Receivables, net 176,177 145,876
Inventories 36,745 40,021
Prepaid expenses 2,138 2,266
Deferred income taxes 8,674 11,214
-------------- --------------
Total current assets 337,737 308,468
PROPERTY, PLANT AND EQUIPMENT, NET 62,839 63,401
EXCESS OF COST OVER NET ASSETS OF
BUSINESSES ACQUIRED, net of accumulated
amortization of $772 and $737 4,148 4,187
INTANGIBLES, net of accumulated amortization
of $1,118 and $1,337 4,383 4,032
INVESTMENT IN AFFILIATE - 695
OTHER ASSETS 2,414 2,359
-------------- --------------
TOTAL ASSETS $ 411,521 $ 383,142
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES :
Notes payable $ 1,629 $ 1,763
Accounts payable 15,279 16,447
Accrued expenses 175,085 143,533
Income taxes payable 16,048 12,381
-------------- --------------
Total current liabilities 208,041 174,124
-------------- --------------
LONG-TERM DEBT 2,836 1,176
-------------- --------------
DEFERRED INCOME TAXES 4,706 3,121
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 16)
MINORITY INTEREST IN SUBSIDIARIES 7,530 2,514
-------------- --------------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $0.10 per share;
2,000,000 shares authorized: Series A
Junior Participating Preferred,
par value $0.10 per share;
456,989 shares authorized; 107 107
no shares issued or outstanding;
Series M Convertible Non-Voting Preferred,
par value $0.l0 per share; 1,066,667 shares
authorized, issued and outstanding
Common stock, par value $0.10 per share;
100,000,000 shares
authorized; 39,111,233 and
39,311,571 shares issued;
38,543,267 and 38,204,405
shares outstanding 3,911 3,931
Capital in excess of par value 48,406 51,563
Retained earnings 149,923 172,381
Accumulated other comprehensive loss (4,063) (5,939)
Treasury stock, at cost; 567,966 and
1,107,166 shares (9,876) (19,836)
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 188,408 202,207
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 411,521 $ 383,142
============== =============
The accompanying notes are an integral part of these consolidated balance
sheets.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31,
(in thousands)
2000 2001 2002
---------- ----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 79,326 $ 32,307 $ 30,339
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,114 7,435 6,815
Noncash items associated with special charges and disposition of assets 203 2,348 910
Equity in net loss of affiliate - - 305
Minority interest in (loss) earnings of subsidiaries (909) 390 (2,729)
Change in deferred income taxes 4,647 (1,523) (3,061)
Changes in assets and liabilities:
Receivables (33,379) 5,128 31,198
Inventories 12,449 (1,257) (4,048)
Prepaid expenses (758) 93 (21)
Accounts payable 3,451 (8,162) 1,616
Accrued expenses 21,646 10,383 (34,443)
Income taxes 18,763 (8,669) (2,956)
Intangibles and other assets 1,438 89 (115)
---------- ----------- ----------
Net cash provided by operating activities 113,991 38,562 23,810
---------- ----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (7,144) (7,466) (8,384)
Sale of investments and property 171 243 411
Investment in affiliate - - (1,000)
Purchase of minority interest in subsidiary - - (4,838)
---------- ----------- ----------
Net cash used in investing activities (6,973) (7,223) (13,811)
---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of short-term debt (9,487) (1,838) (3,173)
Payments of long-term debt (33,000) (19,269) (73)
Dividends paid (4,744) (5,936) (7,881)
Proceeds from long-term debt 18,482 19,623 978
Proceeds from short-term debt 7,668 1,467 3,044
Minority interest portion of investment in subsidiaries 250 - -
Minority interest in dividends paid by subsidiaries (241) (594) (446)
Payments to acquire treasury stock (7,703) - (9,960)
Proceeds from exercise of stock options 2,273 2,871 2,527
---------- ----------- ----------
Net cash used in financing activities (26,502) (3,676) (14,984)
---------- ----------- ----------
EFFECTS OF FOREIGN CURRENCY EXCHANGE RATES (601) (1,127) 73
---------- ----------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 79,915 26,536 (4,912)
CASH AND CASH EQUIVALENTS, beginning of year 7,552 87,467 114,003
---------- ----------- ----------
CASH AND CASH EQUIVALENTS, end of year $ 87,467 $ 114,003 $ 109,091
========== =========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of capitalized interest $ 1,100 $ 500 $ 900
Income taxes $ 18,200 $ 27,600 $ 21,100
Noncash financing activities:
Tax benefit of stock option exercises $ 1,700 $ 500 $ 700
The accompanying notes are an integral part of these consolidated statements.
DELTA AND PINE LAND COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED AUGUST 31, 2000, 2001 AND 2002
(In thousands, except per share data)
Accumulated
Capital in Other Total
Preferred Common Excess of Retained Comprehensive Treasury Stockholders'
Stock Stock Par Value Earnings Income/(Loss) Stock Equity
------------ ------------- ------------ ------------- -------------- ------------- ------------
Balance at August 31, 1999 $ 107 $ 3,866 $ 41,179 $ 48,970 $ (2,545) $ (2,173) $ 89,404
Net income - - - 79,326 - - 79,326
Foreign currency translation adjustment - - - - (601) - (601)
------------
Total comprehensive income 78,725
Exercise of stock options and tax
benefit of stock option exercises - 29 3,917 - - - 3,946
Cash dividends, $0.12 per share - - - (4,744) - - (4,744)
Purchase of common stock - - - - - (7,703) (7,703)
------------ ------------- ------------ ------------- -------------- ------------- ------------
Balance at August 31, 2000 107 3,895 45,096 123,552 (3,146) (9,876) 159,628
Net income - - - 32,307 - - 32,307
Foreign currency translation adjustment - - - - (1,127) - (1,127)
Unrealized gain on hedging instruments - - - - 210 - 210
------------
Total comprehensive income 31,390
Exercise of stock options and tax
benefit of stock option exercises - 16 3,310 - - - 3,326
Cash dividends, $0.15 per share - - - (5,936) - - (5,936)
------------ ------------- ------------ ------------- -------------- ------------- ------------
Balance at August 31, 2001 107 3,911 48,406 149,923 (4,063) (9,876) 188,408
Net income - - - 30,339 - - 30,339
Minimum pension liability adjustment,
net of tax of $1.08 million - - - - (1,787) - (1,787)
Foreign currency translation adjustment - - - - (183) - (183)
Unrealized gain on hedging instruments - - - - 94 - 94
-----------
Total comprehensive income 28,463
Exercise of stock options and tax
benefit of stock option exercises - 20 3,157 - - - 3,177
Cash dividends, $0.20 per share - - - (7,881) - - (7,881)
Purchase of common stock - - - - - (9,960) (9,960)
------------ ------------- ------------ ------------- -------------- ------------- ------------
Balance at August 31, 2002 $ 107 $ 3,931 $ 51,563 $ 172,381 $ (5,939) $ (19,836) $ 202,207
============ ============= ============ ============= ============== ============= ============
The accompanying notes are an integral part of these consolidated statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Delta and Pine Land Company and subsidiaries (the "Company" or "D&PL") breed,
produce, condition and market cotton and soybean planting seed. In connection
with its seed operations, D&PL farms approximately 2,000 acres largely for the
production of cotton and soybean foundation seed.
D&PL has annual agreements with various growers to produce seed for cotton and
soybeans. The growers plant seed purchased from D&PL and follow quality
assurance procedures required for seed production. If the grower adheres to
established Company quality assurance standards throughout the growing season
and if the seed meets Company quality standards upon harvest, D&PL may be
obligated to purchase specified minimum quantities of seed at prices equal to
the commodity market price of the seed, plus a grower premium. D&PL then
conditions the seed for sale as planting seed.
Basis of Presentation
The accompanying financial statements include the accounts of Delta and Pine
Land Company and its subsidiaries. Significant inter-company accounts and
transactions have been eliminated in consolidation. D&PL's investment in
50%-owned affiliate DeltaMax Cotton, LLC is accounted for using the equity
method.
Special Charges/Unusual Items
2001
In August 2001, D&PL announced a series of actions to enhance D&PL's ability to
execute its long-term growth plans and improve performance and profitability.
D&PL closed its Chandler, Arizona facility and reduced its operations and
corporate staffs. D&PL recorded a $6.3 million charge; $3.0 million for fixed
asset write downs and $3.3 million for severance and related benefits in its
fourth quarter. This charge is included in "SPECIAL CHARGES AND UNUSUAL INCOME
ITEM" in the accompanying Consolidated Statements of Income.
2000
1
On May 8, 1998, D&PL entered into a merger agreement with Monsanto, pursuant to
which D&PL would be merged with and into Monsanto. 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. On
December 30, 1999, D&PL filed suit (the "December 30 Suit") in the Circuit Court
for 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, and compensatory damages and punitive damages for Monsanto's
breach of contract. On January 2, 2000, D&PL and Monsanto reached an agreement
whereby D&PL would withdraw the December 30 Suit, and Monsanto would immediately
pay the $81 million. On January 3, 2000, Monsanto paid to D&PL a termination fee
of $81 million, as required by the merger agreement, which is separately
presented as "SPECIAL CHARGES AND UNUSUAL INCOME ITEM" net of related expenses
in the accompanying Consolidated Statements of Income.
______________________
1 On March 31, 2000, Monsanto Company consummated a merger with Pharmacia &
Upjohn Inc. and changed its name to Pharmacia Corporation. On February 9, 2000,
Monsanto Company formed a new subsidiary corporation, Monsanto Ag Company,
which, on March 31, 2000, changed its name to Monsanto Company. On August 31,
2002, Pharmacia distributed to its shareholders its remaining interest in the
new Monsanto Company.
In this document, with respect to events occurring on or before March 31,
2000, the term "Monsanto" refers to the entity then designated Monsanto Company
and renamed Pharmacia Corporation (NYSE: PHA) on that date. With respect to
events occurring after March 31, 2000, this entity is referred to as
"Pharmacia", and the entity formed as Monsanto Ag Company and renamed Monsanto
Company (NYSE: MON) on that date is referred to as "Monsanto".
At August 31, 2002, essentially all amounts related to the fixed asset write
downs for the 2001 reorganization have been utilized. At August 31, 2001
essentially all amounts related to severance pay for the 2001 reorganization had
been paid. At August 31, 2001, all reserves established in 2000, 1999 and prior
years for the above matters had been fully utilized.
Cash Equivalents
Cash equivalents include overnight repurchase agreements and other short-term
investments having an original maturity of less than three months.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation and amortization
are provided for financial reporting purposes using the straight-line method
over the estimated useful lives of the assets. Accelerated methods are used for
income tax purposes. The estimated useful lives of the various classes of
property, in years, are as follows:
Land improvements 5-20
Buildings and improvements 10-35
Machinery and equipment 3-15
Germplasm 10-15
Breeder and foundation seed 40
The germplasm, breeder and foundation seed were purchased as part of
acquisitions and include amounts for specifically identified varieties and for
breeding stocks. The amounts associated with specific varieties are amortized
over the expected commercial life of those varieties. Breeding stocks are
amortized over 40 years, since they can be revitalized from time to time and
remain viable indefinitely after such revitalization.
Intangible Assets and Deferred Charges
Identifiable 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 amortized
using the straight-line method over 40 years, until September 1, 2001, when
amortization was discontinued as discussed further under Recently Issued
Financial Accounting Standards below.
Foreign Currency Translation
Financial statements of foreign operations where the local currency is the
functional currency are translated using exchange rates in effect at period end
for assets and liabilities and average exchange rates during the period for
results of operations. Financial statements of foreign entities in
highly-inflationary economies are translated as though the functional currency
is the United States currency. Translation adjustments are reported as a
separate component of stockholders' equity. Gains and losses from foreign
currency transactions are included in earnings.
Fair Value of Financial Instruments
The fair value of D&PL's financial instruments at August 31, 2002 approximates
their carrying value.
Income Taxes
D&PL uses the liability method of accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using enacted tax rates and laws.
Revenue Recognition
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. Domestically, the licensing fees charged to farmers for Bollgard and
Roundup Ready cottonseed are based on pre-established planting rates for each of
eight geographic regions and consider 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. Generally, all other international
revenues from the sale of planting seed, less estimated reserves for returns,
are recognized when the seed is shipped.
All of D&PL's domestic seed products (including those containing Bollgard and
Roundup Ready technologies) are subject to return and credit risk, the effects
of 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 D&PL's third
and fourth quarters. D&PL provides for estimated returns as sales occur. To the
extent actual returns differ from estimates, adjustments to D&PL's operating
results are recorded when such differences become known, typically in D&PL's
fourth quarter. All significant returns occur or are accounted for by fiscal
year end.
Research and Development
All research and development costs incurred to breed and produce experimental
seed are expensed. Costs incurred to produce sufficient quantities of planting
seed needed for commercialization are carried as inventory until such seed is
sold. Cotton lint and other by-products of seed production are also carried as
inventory until sold.
Accounting for Stock-Based Compensation
Effective in fiscal 1996, D&PL adopted the disclosure provisions of Statement of
Financial Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." In accordance with the provisions of SFAS No. 123, D&PL applies
Accounting Principles Board Opinion 25 and related interpretations in accounting
for its employee stock option plans. See Note 17 for a summary of the pro forma
effects on reported net income and earnings per share for fiscal 2000, 2001 and
2002 based on the fair value of options and shares granted as prescribed by SFAS
No. 123.
Derivative Financial Instruments
D&PL uses various derivative financial instruments 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 D&PL are negotiated to approximate the
terms of the forecasted transaction; therefore, D&PL 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) which generally occurs during D&PL's second and
third fiscal quarters. Quantities hedged that do not exceed the forecasted
transactions are accounted for as cash flow hedges in the manner discussed
above. 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, D&PL
accounts for gains and losses on these derivative instruments as discontinued
cash flow hedges, whereby they are immediately recorded as a component of net
income. D&PL does not enter into any derivative instruments that extend beyond
the close of the following fiscal year.
Impairment of Assets
D&PL assesses recoverability and impairment of intangible assets and other
long-lived assets whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. D&PL determines if the unamortized
balance can be recovered through projected future operating cash flows. If the
sum of the expected future cash flows is less than the carrying amount of the
asset, an impairment loss is recognized in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". Otherwise, an impairment loss is not recognized, and D&PL
continues to amortize its intangible assets and other assets based on the
remaining estimated useful life.
Use of Estimates
The preparation of D&PL's consolidated financial statements requires the use of
estimates and assumptions that affect the reported amounts of assets and
liabilities, the reported amounts of revenues and expenses and the disclosure of
contingent liabilities. Management makes its best estimate of the ultimate
outcome for these items based on historical trends and other information
available when the financial statements are prepared. Changes in estimates are
recognized in accordance with the accounting rules for the estimate, which is
typically in the period when new information becomes available to management.
Areas where the nature of the estimate makes it reasonably possible that actual
results could materially differ from amounts estimated include: damaged,
obsolete and excess inventory, income tax liabilities, allowances for sales
returns and marketing programs and contingent liabilities.
Recently Issued Financial Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 145, "Accounting for
Costs Associated with Exit or Disposal Activities," addresses financial
accounting and reporting for costs associated with exit or disposal activities.
This statement is effective for exit or disposal activities that are initiated
after December 31, 2002, with early application encouraged. Therefore, D&PL must
adopt this statement no later than January 1, 2003. Management has not
determined the impact, if any, that this statement will have on its consolidated
financial position or results of operations.
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.
Therefore, D&PL adopted this statement September 1, 2002. The adoption of this
statement did not have a material impact on D&PL's 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 adopted this statement September 1, 2002. The adoption of this
statement did not have a material impact on D&PL's consolidated financial
position or results of operations.
SFAS No. 142, "Goodwill and Other Intangible Assets," addresses the financial
accounting and reporting for acquired goodwill and other intangible assets.
Effective September 1, 2001, D&PL adopted SFAS 142 at which time all goodwill
amortization ceased (fiscal 2002 goodwill amortization would have been
approximately $160,000). During the second quarter of fiscal 2002, recorded
goodwill attributable to the domestic segment was tested for impairment by
comparing its implied fair value to its carrying value. Based on management's
initial impairment test, management determined that none of the goodwill
recorded was impaired. Impairment adjustments recognized after adoption, if any,
generally are required to be recognized as operating expenses. Excess of cost
over net assets of business acquired at August 31, 2001 and August 31, 2002 was
$4,148,000 and $4,187,000, respectively.
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 D&PL's previously reported amounts for
goodwill or other intangible assets.
2. INVENTORIES
Inventories at August 31, consisted of the following:
2001 2002
----------------------- ----------------------
Finished goods $ 31,835,000 $ 26,263,000
Raw materials 12,515,000 20,961,000
Growing crops 2,218,000 878,000
Supplies 1,162,000 1,141,000
----------------------- ----------------------
47,730,000 49,243,000
Less reserves (10,985,000) (9,222,000)
----------------------- ----------------------
$ 36,745,000 $ 40,021,000
======================= ======================
Finished goods and raw material inventory is valued at the lower of average cost
or market. Growing crops and supplies are recorded at cost. Inventory reserves
relate to estimated excess and obsolete inventory.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at August 31, consisted of the following:
2001 2002
----------------------- --------------------
Land and improvements $ 4,284,000 $ 5,038,000
Buildings and improvements 38,777,000 37,117,000
Machinery and equipment 48,279,000 52,565,000
Germplasm 7,500,000 7,500,000
Breeder and foundation seed 2,000,000 2,000,000
Construction in progress 1,529,000 4,478,000
----------------------- --------------------
102,369,000 108,698,000
Less accumulated depreciation (39,530,000) (45,297,000)
----------------------- --------------------
$ 62,839,000 $ 63,401,000
======================= ====================
4. INTANGIBLES
In connection with adopting SFAS 142, D&PL reassessed the useful lives and the
classification of its identifiable intangible assets and determined that they
continue to be appropriate. The components of identifiable intangible assets
follow (in thousands):
August 31, 2001 August 31, 2002
-------------------------------- ------------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
-------------- ----------------- ------------- ----------------
Trademarks $ 3,182 $ (642) $ 3,182 $ (721)
Commercialization
agreements 400 (6) 400 (37)
Patents 284 (65) 295 (74)
Other 1,635 (405) 1,492 (505)
-------------- ----------------- ------------- ----------------
$ 5,501 $ (1,118) $ 5,369 $ (1,337)
============== ================= ============= ================
Amortization expense for identifiable intangible assets during the year ended
August 31, 2002 was approximately $280,000. Identifiable intangible asset
amortization expense is estimated to be $250,000 in each of the fiscal years
from fiscal 2003 through fiscal 2007.
Pro forma results of operations for the years ended August 31, 2000 and 2001 had
we applied the nonamortization provisions of SFAS 142 in those periods would not
have been materially different than reported results for those periods.
5. INVESTMENT IN AFFILIATE
D&PL's investment in affiliate consists of a 50% interest in DeltaMax Cotton,
LLC ("DeltaMax"), a limited liability company jointly owned with Verdia, Inc.
(formerly known as MaxyAg, Inc.), a wholly-owned subsidiary of Maxygen, Inc.
Established on May 22, 2002, the DeltaMax joint venture was formed to create,
develop and commercialize herbicide tolerant and insect resistant traits for
the cotton seed market. D&PL has licensed from DeltaMax the developed traits for
commercialization in both the U.S. and other cotton-producing countries in the
world. As of August 31, 2002, D&PL's equity in the net loss of DeltaMax was
$305,000.
6. NOTES PAYABLE AND LONG-TERM DEBT
D&PL had a syndicated credit facility with three financial institutions which
provided for aggregate unsecured borrowings of $110 million comprised of a base
commitment of $55 million and a seasonal commitment of $55 million. The base
commitment 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 and expired
April 1, 2001. Each commitment offered variable and fixed interest rate options
and required D&PL to pay facility or commitment fees and to comply with certain
financial covenants.
The interest rate charged for each loan was based on LIBOR plus 35 to 55 basis
points depending on the achievement of certain financial ratios. The average
interest rate was 7.26% and 5.34% during 2000 and 2001, respectively.
The financial covenants required D&PL 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 D&PL's fiscal 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 as of the
last day of each fiscal year, commencing with August 31, 1998. This agreement
expired April 1, 2001. At August 31, 2000, 2001 and 2002, D&PL was in compliance
with these covenants. D&PL and the lenders are currently negotiating a
replacement facility that will provide for aggregate borrowings sufficient to
meet working capital needs that will contain terms and conditions similar to the
1998 facility.
7. ACCRUED EXPENSES
Accrued expenses at August 31, consisted of the following:
2001 2002
------------------ ------------------
Bollgard and Roundup Ready
royalties and related expenses
due to Monsanto $ 133,956,000 $ 112,178,000
Sales allowances 16,383,000 10,447,000
Payroll 4,162,000 2,310,000
Other accrued expenses 20,584,000 18,598,000
------------------ ------------------
$ 175,085,000 $ 143,533,000
================== ==================
8. INCOME TAXES
The provisions for income taxes for the years ended August 31, consisted of the
following:
2000 2001 2002
--------------- ----------------- -----------------
Current-
Federal $43,452,000 $ 16,972,000 $ 18,380,000
State 1,647,000 2,064,000 2,047,000
Deferred (949,000) (863,000) (3,733,000)
--------------- ----------------- -----------------
$44,150,000 $ 18,173,000 $ 16,694,000
=============== ================= =================
The differences between the statutory federal income tax rate and the
effective rate are as follows:
2000 2001 2002
----------- ----------- ------------
Statutory rate 35.0% 35.0% 35.0%
Increases (decreases) in tax resulting from:
State taxes, net of federal tax benefit 0.7 2.4 2.2
Research and development tax credits (0.4) (1.0) (1.1)
Foreign activities and non-deductible costs (1.1) (1.7) (1.4)
Other 0.6 1.3 0.8
----------- ----------- ------------
Effective rate 34.8% 36.0% 35.5%
=========== =========== ============
Deferred income taxes at August 31, consisted of the following:
2001 2002
---------------- ----------------
Deferred tax assets:
Inventory $ 4,098,000 $ 5,660,000
Litigation costs 1,635,000 1,946,000
Pension 460,000 1,447,000
Other 3,358,000 2,988,000
---------------- ----------------
$ 9,551,000 $ 12,041,000
================ ================
Deferred tax liabilities:
Property $ (5,034,000) $ (1,225,000)
Other (549,000) (2,723,000)
---------------- ----------------
(5,583,000) (3,948,000)
---------------- ----------------
Net deferred income taxes $ 3,968,000 $ 8,093,000
================ ================
The Company has provided for income taxes on the undistributed earnings of
foreign subsidiaries as if they had been distributed in cases where the earnings
are not planned to be permanently reinvested outside the United States.
9. LEASES
D&PL leases a portion of the real estate and machinery and equipment used in its
operations. Substantially all rent expense is recorded as cost of sales. D&PL
has no capital leases. Future minimum rental payments after 2002 under operating
leases with initial or remaining noncancellable terms in excess of one year are
as follows:
2003 $ 364,000
2004 $ 79,000
2005 $ 29,000
2006 $ 29,000
2007 $ 8,000
Rent and lease expense including land rent approximated $3,354,000, $2,993,000
and $2,704,000 in 2000, 2001 and 2002, respectively.
10. EMPLOYEE BENEFIT PLANS
Defined Benefit Plan
Substantially all full-time employees are covered by a noncontributory defined
benefit plan (the "Plan"). Benefits are paid to employees, or their
beneficiaries, upon retirement, death or disability based on their final average
compensation over the highest consecutive five years. Plan assets consist
primarily of U.S. government securities and common stock and are managed by an
independent portfolio manager. D&PL's funding policy is to make contributions to
the Plan that are at least equal to the minimum amounts required to be funded in
accordance with the provisions of ERISA.
Effective January 1992, D&PL adopted a Supplemental Executive Retirement Plan
(the "SERP"), which will pay supplemental pension benefits to certain employees
whose benefits from the Plan were decreased as a result of certain changes made
to the Plan. The benefits from the SERP will be paid in addition to any benefits
the participants may receive under the Plan and will be paid from Company
assets, not Plan assets.
D&PL has adopted SFAS No. 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits." The measurement of Plan and SERP assets and
obligations was performed as of June 30. The following table provides a
reconciliation of the changes in the Plan's and SERP's benefit obligations and
fair value of assets over the two-year period ended August 31, 2002, and a
statement of the funded status as of August 31, 2001 and 2002.
Plan SERP
------------------------------------ -----------------------------------
2001 2002 2001 2002
--------------- ---------------- --------------- -----------------
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligation at beginning of year $ 11,223,000 $ 11,905,000 $ 642,000 $ 547,000
Service cost 634,000 646,000 7,000 7,000
Interest cost 815,000 841,000 46,000 37,000
Actuarial (gain) loss (90,000) 678,000 (94,000) 28,000
Benefits paid (677,000) (677,000) (54,000) (49,000)
--------------- ---------------- --------------- -----------------
Benefit obligation at end of year $ 11,905,000 $ 13,393,000 $ 547,000 $ 570,000
=============== ================ =============== =================
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 12,123,000 $ 10,231,000 $ 642,000 $ 540,000
Actual return on plan assets (1,144,000) (2,317,000) (47,000) (110,000)
Company contributions 600,000
Benefits paid (677,000) (677,000) (54,000) (49,000)
Expenses (71,000) (76,000) (1,000) (1,000)
--------------- ---------------- --------------- ----------------
Fair value of plan assets at end of year $ 10,231,000 $ 7,761,000 $ 540,000 $ 380,000
=============== ================ =============== =================
Funded status $ (1,674,000) $ (5,632,000) $ (7,000) $ (190,000)
Contribution after measurement date - 1,000,000 - -
Unrecognized transition obligation 65,000 - - -
Unrecognized prior service cost 47,000 43,000 - -
Unrecognized net loss 102,000 4,062,000 9,000 185,000
-------------- --------------- -------------- ----------------
Accrued pension cost $ (1,460,000) $ (527,000) $ 2,000 $ (5,000)
============== =============== ============== ================
Plan SERP
----------------------------------- -----------------------------------
2001 2002 2001 2002
---------------- ---------------- ---------------- ---------------
AMOUNTS REFLECTED IN THE BALANCE SHEET AT
AUGUST 31:
Accrued benefit liability $ (1,460,000) $ (527,000) $ 2,000 $ (5,000)
Minimum pension liability - (2,725,000) - (185,000)
Accumulated other comprehensive loss - 2,682,000 - 185,000
Intangible asset - 43,000 - -
---------------- ---------------- ---------------- ---------------
Net amount reflected $ (1,460,000) $ (527,000) $ 2,000 $ (5,000)
================ ================ ================ ===============
Periodic Pension Expense:
Plan SERP
--------------------------------------------- ----------------------------------------------
2000 2001 2002 2000 2001 2002
-------------- ------------- --------------- -------------- --------------- -------------
Service cost $ 571,000 $ 634,000 $ 646,000 $ 6,000 $ 7,000 $ 7,000
Interest cost on projected
benefit obligation 754,000 815,000 841,000 46,000 46,000 37,000
Expected return on assets (974,000) (1,055,000) (889,000) (55,000) (55,000) (47,000)
Amortization of transitional
obligation 120,000 119,000 65,000 - - -
Net unrecognized (gain)/loss
and amortization (58,000) (79,000) 4,000 (38,000) - 10,000
-------------- ------------- -------------- -------------- --------------- -------------
Net periodic pension
expense/(income) $ 413,000 $ 434,000 $ 667,000 $ (41,000) $ (2,000) $ 7,000
============== ============= ============== ============== =============== =============
Company contributions $ - $ - $ 1,600,000 $ - $ - $ -
============== ============= ============== ============== =============== =============
The actuarial present value of the projected benefit obligation of the Plan and
the SERP was determined using a discount rate of 7.25% in 2001 and 7.00% in
2002, with assumed salary increases of 4% in 2001 and 2002 to age 65. The
expected long-term rate of return on assets was 9% in 2001 and 2002. Prior
service cost is amortized over 15 years.
Defined Contribution Plan
D&PL sponsors a defined contribution plan under Section 401(k) of the Internal
Revenue Code which covers substantially all full-time employees of D&PL. D&PL,
at its option, may elect to make matching contributions to the Plan. No matching
contributions were made in 2000, 2001 or 2002.
11. MAJOR CUSTOMERS
In fiscal 2000, 2001 and 2002 seed sales to each of three customers and the
related licensing fees ultimately billed to farmers for sales made by these
customers for transgenic products comprised more than 10% of total sales and
licensing fees. The table below presents the approximate amount of annual sales
including technology fees to each of the customers. These amounts were reported
in D&PL's domestic segment.
Customer 2000 2001 2002
--------------- ------------------ ------------------- -------------------
A $34,246,000 $31,833,000 $29,034,000
B 51,938,000 54,937,000 46,752,000
C 69,951,000 72,358,000 56,532,000
12. BUSINESS SEGMENT INFORMATION
D&PL is in a single line of business and operates in two business segments,
domestic and international. D&PL'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. D&PL develops its proprietary seed
products through research and development efforts in the United States and
certain foreign countries.
D&PL'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 D&PL's Board of Directors. The accounting policies of the
segments are substantially the same as those described in the summary of
significant accounting policies.
Information about D&PL's segments for the years ended August 31, is as follows
(in thousands):
2000 2001 2002
------------- ------------- -------------
Net sales and licensing fees
Domestic $ 270,205 $ 261,883 $ 225,402
International 30,976 43,923 32,405
------------- ------------- -------------
$ 301,181 $ 305,806 $ 257,807
============= ============= =============
Operating income
Domestic $ 120,305 $ 43,429 $ 44,554
International 4,308 8,241 5,276
--------------- -------------- --------------
$ 124,613 $ 51,670 $ 49,830
=============== ============== ==============
Capital expenditures
Domestic $ 6,805 $ 6,594 $ 5,922
International 339 872 2,462
--------------- -------------- --------------
$ 7,144 $ 7,466 $ 8,384
=============== ============== ==============
Information about the financial position of D&PL's segments as of August 31, is
as follows (in thousands):
2001 2002
--------------- ---------------
Long-term assets
Domestic $ 60,215 $ 60,004
International 13,569 14,670
--------------- ---------------
$ 73,784 $ 74,674
=============== ===============
Total assets
Domestic $ 382,879 $ 368,345
International 28,642 14,797
--------------- ---------------
$ 411,521 $ 383,142
=============== ===============
13. RELATED PARTY TRANSACTIONS
The chairman of the Board of Directors of D&PL is also a director and
officer for Stephens Group, Inc. and Stephens, Inc., a full service investment
bank. Stephens Group, Inc and Stephens Inc. are stockholders of D&PL. During
2002, D&PL paid consulting fees to Stephens, Inc. of approximately $306,000.
During 2000, 2001 and 2002, a partner of two law firms (he changed firms) that
represented D&PL was also a stockholder and D&PL's corporate secretary. D&PL
paid legal fees to those firms of approximately $943,000, $833,000, and $628,000
in 2000, 2001 and 2002, respectively.
During 2000, 2001 and 2002 the Institute of Molecular Agrobiology ("IMA"),
which is owned by the National University of Singapore and the National Science
and Technology Board of Singapore, conducted contract research upon D&PL's
instruction related to the development of certain technologies for varietal
crops such as cotton and soybeans. D&PL paid approximately $296,000, $406,000
and $249,000 in 2000, 2001 and 2002, respectively, for such research projects.
Dr. Chua, a member of the Board of Directors of D&PL, was the Chairman of the
Management Board of Directors of IMA until September 2000 and Deputy Chairman
from that time until September 2001 and was also Chairman of the Board of an
affiliate of IMA, IMAGEN, until August 2001. IMAGEN, together with Singapore
Bio-Innovations Pte. Ltd., STIC Investments Pte. Ltd., and OCBC Wearnes and
Walden Investments Pte. Ltd., own 20% of the stock of D&PL China Pte. Ltd.
14. DERIVATIVE FINANCIAL INSTRUMENTS
As of August 31, 2001 and August 31, 2002, net unrealized gains of $210,000 and
$304,000 related to soybean hedging activities were recorded as a component of
other comprehensive income, respectively. Net unrealized losses of $631,000 and
$222,000 arose during the twelve months ended August 31, 2001 and August 31,
2002, respectively. Reclassification adjustments from other comprehensive income
for net losses realized to net income of $841,000 and $316,000 were made during
the years ended August 31, 2001 and August 31, 2002, respectively. The net
unrealized gains of $304,000 that remain in other comprehensive income as of
August 31, 2002 will be recognized in earnings within the next twelve months;
however, the actual amount that will be charged to earnings may vary as a result
of changes in market conditions. There were no foreign currency forward exchange
contracts outstanding as of August 31, 2002.
For the years ended August 31, 2001 and August 31, 2002, D&PL recorded no gains
or losses in earnings as a result of hedge ineffectiveness or discontinuance of
cash flow hedges.
15. ACQUISITION OF D&M INTERNATIONAL, LLC
On May 28, 2002, D&PL acquired the 50% interest in D&M International, LLC it did
not own from Pharmacia for cash of approximately $4.8 million. D&PL and Monsanto
formed D&M International, LLC in 1995 to introduce 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 April
2002, Pharmacia activated a cross purchase provision in the operating agreement
for D&M International, LLC and D&PL notified Pharmacia that it elected to have
D&M International, LLC redeem Pharmacia's 50% interest in the company. As a
result of the redemption of Pharmacia's interest, D&PL now owns all of D&M
International, LLC.
The acquisition of the 50% interest in D&M International, LLC has been accounted
for as a purchase and the results of operations and earnings (losses) previously
allocated to the minority owner have been included from the date of acquisition.
A preliminary allocation of the purchase price resulted in no goodwill. To
complete the allocation of the purchase price, the fair values of the
international joint ventures that comprise the primary assets of D&M
International, LLC will have to be determined. Pro forma results of operations
for the years ended August 31, 2000, 2001 and 2002 had the acquisition occurred
at the beginning of those periods would not have been materially different than
reported results for those periods.
16. COMMITMENTS AND CONTINGENCIES
Product Liability Claims
D&PL is named as a defendant in various lawsuits that allege, among other
things, that certain of D&PL'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 distribution/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 Bollgard
Gene License and Seed Services Agreement dated February 2, 1996 as amended
December 8, 1999 (the "Bollgard Agreement") and the Roundup Ready Gene License
and Seed Services Agreement dated February 2, 1996 and as amended July 26, 1996
and December 8, 1999 (the "Roundup Ready Agreement") D&PL has a right to be
contractually indemnified by Monsanto against all claims arising out of the
failure of Monsanto's gene technology. Pharmacia remains liable for Monsanto's
performance under these indemnity agreements. Some of the product liability
lawsuits contain varietal claims which are aimed solely at D&PL. 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. D&PL believes that the resolution of these matters will not
have a material impact on the consolidated financial statements. D&PL intends to
vigorously defend itself in these matters.
Other Matters
In July 2002, Syngenta Biotechnology, Inc. ("SBI") brought suit in the U.S.
District Court in Delaware alleging that D&PL's making, using, selling and
offering to sell cotton planting seed containing Monsanto's Bt genes, being sold
under the trade name Bollgard, infringes U.S. Patent 6,051,757 entitled
"Regeneration Of Plants Containing Genetically Engineered T-DNA". The suit seeks
a preliminary and permanent injunction against D&PL and Monsanto against further
acts of alleged infringement, contributory infringement and inducement of
infringement of SBI's patent and recovery of damages for an unspecified amount
including treble damages on account of the defendants' alleged willful
infringement. D&PL has demanded that Pharmacia and Monsanto each agree to defend
D&PL in this suit and to indemnify D&PL against damages, if any, which may be
awarded. Monsanto has assumed the defense of D&PL and has filed an answer
generally denying infringement and other claims made in the litigation. D&PL is
assisting Monsanto to the extent reasonably necessary for the conduct of the
litigation. Due to the recent nature of this suit, management has not determined
the effect this litigation will have on D&PL.
In May 2002, Pharmacia Corporation filed a suit in state court in Missouri
against D&PL International Technology Corp. ("DITC"), D&PL's subsidiary, seeking
a declaratory judgment that it was entitled to invoke the cross purchase
provision in the Operating Agreement for D&M International, LLC, a limited
liability company jointly owned by Pharmacia and DITC. In the alternative,
Pharmacia sought a declaratory judgment that DITC was deemed to have consented
to Pharmacia's transfer of the Operating Agreement to Monsanto and its issuance
and transfer of shares of Monsanto's stock. DITC moved to dismiss on June 6,
2002, because the case was moot and did not present a justiciable controversy,
in that DITC had already invoked its rights under the cross purchase provision
and had caused Pharmacia's interest in D&M International, LLC to be redeemed.
Instead of answering DITC's motion, on or about June 13, 2002, Pharmacia filed
an amended petition, dropping all of its prior claims, and seeking a declaratory
judgment that DITC has no contractual rights to enjoin Pharmacia from selling
its shares of Monsanto or to seek damages for Pharmacia's prior initial public
offering of Monsanto's shares to the public. DITC moved to dismiss the suit,
since it had never threatened to enjoin the spin-off, and, in the alternative,
moved for a more definite statement. On October 12, 2002, the Court denied
DITC's motion to dismiss but granted DITC's motion for a more definite
statement. Pharmacia filed a Second Amended Petition on October 30, 2002, and
DITC filed a motion to dismiss the Second Amended Petition on November 19, 2002.
Given the relief sought, D&PL does not believe that this litigation will have a
material effect on D&PL.
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, D&PL, and D&M International, LLC (then a limited liability company
jointly owned by Monsanto and D&PL) under federal antitrust laws and requested
class certification. Plaintiffs claim that defendants have: (1) unlawfully
attempted to monopolize the U.S. cottonseed and herbicide market in violation of
ss. 2 of the Sherman Act; (2) monopolized the U.S. cottonseed and herbicide
market in violation of ss. 2 of the Sherman Act; (3) conspired to unreasonably
restrain trade in the U.S. cottonseed and herbicide market in violation of ss. 1
of the Sherman Act; and (4) engaged in unlawful tying of cottonseed 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, D&PL 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 D&PL that violates
the federal antitrust laws. On December 6, 2001, the United States District
Judge, acting on the recommendation of the Magistrate Judge, granted Monsanto's
and D&PL'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 D&PL; however, plaintiffs did not assert in their Amended Complaint
any claims against D&M International, LLC. Both D&PL and Monsanto moved to
dismiss the complaint. The Court granted this motion in part and denied it in
part on May 30, 2002. D&PL filed an answer. On November 1, 2002, the Court
granted Monsanto's and D&PL's motion to bifurcate discovery. Discovery is now in
process but it is limited to discovery on class certification issues to be
followed by discovery on the merits. On November 14, 2002, the Court granted
plaintiff's motion for voluntary dismissal of the claims brought on behalf of
direct purchasers. The Court also dismissed Counts 1 and 2 of the Amended
Complaint, which alleged unlawful monopolization in the cottonseed and herbicide
markets. The remaining claim (brought only on behalf of the indirect
purchasers) relates to allegations about unlawful tying of cottonseed and
herbicide. The plaintiffs have until March 15, 2003, to file a class
certification motion.
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.
A corporation owned by the son of D&PL's former Guatemalan distributor sued in
1989 asserting that D&PL 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 5,292,459 Guatemalan quetzales (approximately
$715,265 at October 31, 2002 exchange rates) and an injunction preventing D&PL
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. D&PL continues to make available seed for sale in
Guatemala.
17. STOCKHOLDERS' EQUITY
Preferred Stock
The Board of Directors of D&PL is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue up to an
aggregate of 2,000,000 shares of Preferred Stock, in one or more series, and to
determine or alter the designations, preferences, rights and any qualifications,
limitations or restrictions on the shares of each such series thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices,
liquidation preferences and the number of shares constituting any series or
designations of such series.
In August 1996, the Board of Directors adopted a Stockholder Rights Plan
("Rights Plan") and declared a dividend of one preferred stock purchase right
("right") for each outstanding share of D&PL's Common Stock. Similar rights have
been, and generally will be, issued in respect of Common Stock subsequently
issued. Each right becomes exercisable, upon the occurrence of certain events,
for one one-hundredth of a share of Series A Junior Participating Preferred
Stock, $0.10 par value, at a purchase price of $175 per one one-hundredth of a
Preferred Share, subject to adjustment. In the event that D&PL is acquired in a
merger or other business combination transaction not approved by the Board of
Directors, each holder of a right shall have the right to receive that number of
shares of common stock of the surviving company which would have a market value
of two times the exercise price of the right. The Board of Directors previously
approved the Monsanto merger and modified the Rights Plan to deactivate it for
such merger. Upon the merger termination, the Board rescinded that deactivation.
Under the Rights Plan, 456,989 shares of Series A Junior Participating Preferred
Stock have been reserved. The rights currently are not exercisable and will be
exercisable only if a person or group acquires beneficial ownership of 15% or
more of D&PL's outstanding shares of Common Stock. The rights, which expire on
August 30, 2006, are redeemable in whole, but not in part, at D&PL's option at
any time for a price of $0.01 per right.
D&PL issued 1,066,667 shares (after effect of stock splits) of Series M
Convertible Non-Voting Preferred Stock, as consideration for the purchase in
1996 of Hartz Cotton, Inc. from Monsanto. The holders of Series M Preferred
Stock are entitled to receive dividends at the same rate per share as is paid
from time to time on each share of the Common Stock of D&PL, and no more, when
and as declared by the Board of Directors. In the event of any liquidation,
dissolution or winding up of D&PL, either voluntary or involuntary, the holders
of Series M Preferred Stock shall be entitled to receive, prior to and in
preference to any distribution to holders of Common Stock or any other class of
security of D&PL, $13.936 per share of Series M Preferred Stock. The Series M
Preferred Stock is convertible beginning upon the seventh anniversary of the
date on which the Series M Preferred Stock was issued or the occurrence of other
specified events, whichever occurs first.
Stock Option Plans
The 1993 Stock Option Plan authorized options to purchase up to 2,560,000 shares
(after effect of all stock splits) of Common Stock at an option price not less
than the market price on the date of grant.
The 1995 Long-Term Incentive Plan, as amended and restated in March 2000, (the
"LTIP") allows for the awarding of stock options to officers, key employees and
directors. The amended and restated 1995 plan eliminates the ability of the
Board of Directors to award stock appreciation rights, restricted shares of
common stock and performance unit credits. Under the LTIP, 5,120,000 shares
(after effect of stock splits) of Common Stock of D&PL were available for grant.
Shares subject to options and awards which expire unexercised are available
for new option grants and awards. New members of the Board of Directors receive
automatic grants of 62,222 shares upon being named to the Board and each
director is given an additional annual grant of 2,666 shares for each of the
second through sixth years each director serves as such (which grants began in
1998). At the March 30, 2000 Annual Meeting, the Board of Directors agreed to
grant options to each Director for 80,000 shares of D&PL Common Stock. Such
options are exercisable ratably over five years commencing after one year from
the date of grant.
Additional information regarding options granted and outstanding is summarized
below:
Stock Options Number of
Shares Price Range
-------------- --------------------------
Outstanding at August 31, 1999 3,142,957 $ 4.67 $ 49.31
Granted 1,785,443 16.91 19.81
Exercised (281,160) 4.67 26.82
Lapsed or canceled (209,620) 10.69 48.56
-------------- ------------ ----------
Outstanding at August 31, 2000 4,437,620 4.67 49.31
Granted 84,218 23.68 25.19
Exercised (165,508) 4.67 22.36
Lapsed or canceled (300,370) 15.71 49.31
-------------- ------------ ----------
Outstanding at August 31, 2001 4,055,960 4.67 49.31
Granted 682,496 17.85 20.47
Exercised (200,338) 4.67 19.62
Lapsed or canceled (500,299) 16.91 49.31
-------------- ------------ ----------
Outstanding at August 31, 2002 4,037,819 $ 4.67 $ 47.31
============== ============ ==========
D&PL applies Accounting Principles Board Opinion 25 in accounting for its
employee stock option plans. Therefore, no compensation cost for stock options
is deducted in determining net income. SFAS No. 123, if elected, would require
the estimated fair value of options granted in fiscal 1996 and thereafter to be
amortized to expense over the options' vesting period. Had the compensation cost
been calculated in this manner, D&PL's pro forma net income and net earnings per
share would have been as follows:
August 31,
(Dollars in thousands, except per share data) 2000 2001 2002
--------------------------------------------------------- --------------- ------------------- ----------------
Pro forma compensation cost, net of tax $ 4,568 $ 5,743 $ 4,714
Net income applicable to common shares, as reported 79,198 32,147 30,126
Pro forma net income 74,630 26,404 25,412
Basic earnings per share, as reported 2.06 0.84 0.79
Pro forma basic earnings per share 1.94 0.69 0.66
Diluted earnings per share, as reported 1.98 0.81 0.76
Pro forma diluted earnings per share 1.86 0.66 0.64
The weighted average fair values of options granted in fiscal 2000, 2001 and
2002 were $9.61, $10.41 and $6.49 per share, respectively. The fair value for
these options was estimated at the date of grant, using a Black-Scholes Option
Pricing Model with the following assumptions:
2000 2001 2002
--------------------- --------------- ----------------
Expected dividend yield 3% 3% 3%
Expected option lives 5 years 5 years 5 years
Expected volatility 51.88% 39.09% 33.52%
Risk-free interest rates 5.96% 5.86% 5.54%
The following table summarizes certain information about outstanding and
exercisable stock options at August 31, 2002:
Options Outstanding Options Exercisable
------------------------------------------------ --------------------------------------
Weighted Average
Remaining Weighted Weighted
Contractual Life Average Average
Exercise Price Range in Years Exercise Exercise
Number Price Number Price
--------------------- -------------- ------------------- ------------- -------------- -------------
$ 4.67 to 16.50 871,313 2.37 $ 8.28 871,313 $ 8.28
$ 16.91 to 28.90 3,067,846 6.98 20.79 1,510,590 22.17
$ 32.80 to 39.19 81,660 6.24 35.90 51,662 35.98
$ 41.69 to 49.31 17,000 5.53 42.35 13,600 42.35
-------------- --------------
-------------- --------------
4,037,819 2,447,165
Treasury Stock
In February 2000, the Board of Directors authorized a program for the repurchase
of up to $50 million of D&PL's common stock. The shares repurchased under this
program are to be used to provide for option exercises, conversion of D&PL's
Series M Convertible Non-Voting Preferred shares and for other general corporate
purposes. At August 31, 2002, D&PL had repurchased 992,900 shares at an
aggregate purchase price of approximately $17,663,000 under this program. D&PL
purchased 539,200 shares at an aggregate purchase price of $9,960,000
under this plan in the year ended August 31, 2002. Between September 1, 2002 and
October 25, 2002, D&PL repurchased 61,400 shares at an aggregate purchase price
of $1.1 million.
Earnings Per Share
Dilutive common share equivalents consist of both D&PL's Series M Convertible
Non-Voting Preferred Shares and outstanding stock options under D&PL's 1993
Stock Option Plan and the 1995 Long-Term Incentive Plan. Approximately 781,000,
748,000 and 2,259,000 outstanding stock options were not included in the
computation of diluted earnings per share for the years ended August 31, 2000,
2001 and 2002, respectively, because the effect of their exercise was not
dilutive based on the average market price of D&PL's common stock for each
respective reporting period.
For the Twelve Months Ended August 31,
- --------------------------------------
2000 2001 2002
----------------- ---------------- ---------------
Basic Earnings per Share:
Net income per share before cumulative effect of
accounting change $ 2.14 $ 0.84 $ 0.79
Cumulative effect of accounting change (0.08) - -
----------------- ---------------- ---------------
Net income $ 2.06 $ 0.84 $ 0.79
================= ================ ===============
Diluted Earnings per Share:
Net income per share before cumulative effect of
accounting change $ 2.05 $ 0.81 $ 0.76
Cumulative effect of accounting change (0.07) - -
----------------- ---------------- ---------------
Net income $ 1.98 $ 0.81 $ 0.76
================= ================ ===============
Number of shares used in basic earnings per
share calculations 38,496 38,473 38,362
================= ================ ===============
Number of shares used in diluted earnings per
share calculations 40,159 40,111 39,781
================= ================ ===============
The table below reconciles the basic and diluted per share computations for
income before the cumulative effect of a change in accounting principle:
For the Twelve Months Ended August 31,
- --------------------------------------
2000 2001 2002
---------------- ---------------- ---------------
Income:
Income before cumulative
effect of accounting change $ 82,291 $ 32,307 $ 30,339
Less: Preferred stock dividends (128) (160) (213)
---------------- ---------------- ---------------
Basic EPS:
Income available to common stockholders 82,163 32,147 30,126
Effect of Dilutive Securities:
Convertible Preferred Stock Dividends 128 160 213
---------------- ---------------- ---------------
Diluted EPS:
Income available to common stockholders
plus assumed conversions $ 82,291 $ 32,307 $ 30,339
================ ================ ===============
Shares:
Basic EPS shares 38,496 38,473 38,362
Effect of Dilutive Securities:
Options to purchase common stock 596 571 352
Convertible preferred stock 1,067 1,067 1,067
---------------- ---------------- ---------------
Diluted EPS shares 40,159 40,111 39,781
================ ================ ===============
Per Share Amounts:
Basic $ 2.14 $ 0.84 $ 0.79
================ ================ ===============
Diluted $ 2.05 $ 0.81 $ 0.76
================ ================ ===============
18. UNAUDITED QUARTERLY FINANCIAL DATA
All of D&PL's domestic seed products are subject to return and credit risks, the
effects of which vary from year to year. The annual level of returns and,
ultimately, net sales and net income are influenced by various factors,
principally weather conditions occurring in the spring planting season (spanning
D&PL's third and fourth fiscal quarters). D&PL provides for estimated returns as
sales are made. To the extent actual returns differ from estimates, adjustments
to D&PL's operating results are recorded when such differences become known,
typically in D&PL's fourth quarter. All significant returns occur or are
accounted for by fiscal year end. Generally, international sales are not subject
to return. A substantial portion of Company sales is concentrated in the second
and third fiscal quarters. As a result, D&PL generally expects to incur losses
in the first and fourth quarters. Management believes that such seasonality is
common throughout the seed industry.
Summarized unaudited quarterly financial data is as follows:
(In thousands, except per share data)
------------------------------------------------------------------------------------------------------------------------------
Fiscal 2000: Three months ended
November 30 February 29 May 31 August 31
------------------------------------------------------------------------------------------------------------------------------
Net sales and licensing fees $ 4,549 $ 104,203 $ 177,365 $ 15,064
Gross profit 301 31,041 65,190 2,835
Net income (loss) applicable to
common shares(2) (9,540) 58,595 34,856 (4,713)
Net income (loss) per share-basic(1)(2) (0.25) 1.52 0.91 (0.12)
Weighted average number of shares used
in quarterly per share calculations -basic 38,662 38,664 38,319 38,363
Net income (loss) per share-diluted(1)(2) (0.25) 1.46 0.88 (0.12)
Weighted average number of shares used
in quarterly per share calculations-diluted 38,662 40,110 39,845 38,363
------------------------------------------------------------------------------------------------------------------------------
Fiscal 2001: Three months ended
November 30 February 28 May 31 August 31
------------------------------------------------------------------------------------------------------------------------------
Net sales and licensing fees $ 9,694 $ 150,154 $ 139,331 $ 6,627
Gross profit 2,295 51,782 48,596 2,897
Net income (loss) applicable to
common shares(3) (4,958) 23,843 22,885 (9,623)
Net income (loss) per share-basic(1)(3) (0.13) 0.62 0.59 (0.25)
Weighted average number of shares used
in quarterly per share calculations -basic 38,386 38,425 38,963 38,543
Net income (loss) per share- diluted(1)(3) (0.13) 0.59 0.56 (0.25)
Weighted average number of shares used
in quarterly per share calculations- diluted 38,386 40,101 40,667 38,543
------------------------------------------------------------------------------------------------------------------------------
Fiscal 2002: Three months ended
November 30 February 28 May 31 August 31
------------------------------------------------------------------------------------------------------------------------------
Net sales and licensing fees $ 8,253 $ 111,867 $ 135,386 $ 2,301
Gross profit 2,804 40,122 49,050 573
Net income (loss) applicable to
common shares (4,538) 17,721 25,012 (8,069)
Net income (loss) per share-basic(1) (0.12) 0.46 0.65 (0.21)
Weighted average number of shares used
in quarterly per share calculations -basic 38,385 38,454 38,343 38,267
Net income (loss) per share- diluted(1) (0.12) 0.44 0.63 (0.21)
Weighted average number of shares used
in quarterly per share calculations- diluted 38,385 39,991 39,769 38,267
(1) The sum of the quarterly net income (loss) per share amounts
may not equal the annual amount reported since per share amounts are
computed independently for each quarter, whereas annual earnings per
share are based on the annual weighted average shares deemed
outstanding during the year.
(2) The second quarter includes the effect of recording the $81.0
million merger termination fee paid by Monsanto, net of related
expenses. (3) The fourth quarter includes the effect of recording a
$6.3 million charge for the closing of a delinting plant and severance
related to the reduction in operations and corporate staffs.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Effective May 15, 2002, at the recommendation of the Audit Committee, the Board
of Directors of Delta and Pine Land Company ("Delta and Pine Land") engaged KPMG
LLP ("KPMG") as Delta and Pine Land's independent auditors. During the two most
recent fiscal years and through May 14, 2002, Delta and Pine Land did not
consult KPMG with respect to the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the consolidated financial statements of Delta
and Pine Land, or any other matters or reportable events as set forth in Items
304(a)(2)(i) and (ii) of Regulation S-K.
KPMG replaced the firm of Arthur Andersen LLP ("Arthur Andersen"), who was
dismissed by Delta and Pine Land's Board of Directors at the recommendation of
the Audit Committee. In light of the uncertainties involving Arthur Andersen,
Delta and Pine Land's Board of Directors and Audit Committee determined that it
was in the best interests of Delta and Pine Land to appoint a different
independent auditing firm.
Arthur Andersen issued an unqualified opinion on the consolidated financial
statements of Delta and Pine Land as of and for the years ended August 31, 2001
and 2000. To the knowledge of management, during the fiscal years ended August
31, 2001 and 2000, and in the subsequent period through the date of dismissal,
there were no disagreements with Arthur Andersen on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope and
procedures which, if not resolved to the satisfaction of Arthur Andersen, would
have caused it to make reference to the matter in connection with their report
on the financial statements. Additionally, during such periods there were no
reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.
Delta and Pine Land requested, and Arthur Andersen furnished, a letter addressed
to the Securities and Exchange Commission stating that Arthur Andersen agrees
with the statements made by Delta and Pine Land herein. A copy of that letter
from Arthur Andersen to the Securities and Exchange Commission is filed as
Exhibit 16 to this Annual Report on Form 10-K. For additional information, see
Exhibit 23.02 hereto.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to these items is set forth in D&PL's Proxy Statement
for the Annual Meeting of Stockholders to be held on January 22, 2003 to be
filed with the Commission pursuant to Regulation 14(a) no later than December
30, 2002 and is incorporated herein by reference.
PART IV
ITEM 14. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures.
D&PL's chief executive officer and chief financial officer have evaluated the
effectiveness of the design and operation of D&PL's disclosure controls and
procedures (as defined in Exchange Act Rule 13a-14(c)) as of a date within 90
days of the filing date of this annual report. Based on that evaluation, the
chief executive officer and chief financial officer have concluded that D&PL's
disclosure controls and procedures are effective to ensure that material
information relating to D&PL and D&PL's consolidated subsidiaries is made known
to such officers by others within these entities, particularly during the period
this annual report was prepared, in order to allow timely decisions regarding
required disclosure.
(b) Changes in Internal Controls.
There have not been any significant changes in D&PL's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
1. Financial Statements - the following consolidated financial
statements of Delta and Pine Land Company and subsidiaries are
submitted in response to Part II, Item 8:
Report of Independent Public Accountants
Consolidated Statements of Income - for each of the three
years in the period ended August 31, 2002
Consolidated Balance Sheets - August 31, 2001 and 2002
Consolidated Statements of Cash Flows - for each of the three
years in the period ended August 31, 2002
Consolidated Statements of Changes in Stockholders' Equity -
for each of the three years in the period ended August
31, 2002
Notes to Consolidated Financial Statements
2. Financial Statement Schedule - the following financial
statement schedule of Delta and Pine Land Company and
subsidiaries is submitted in response to Part IV, Item 15:
Independent Auditors' Report.................................................................55
Report of Independent Public Accountants.....................................................56
Schedule II - Consolidated Valuation and Qualifying Accounts.................................57
All other schedules have been omitted as not required, not
applicable or because all the data is included in the
financial statements.
3. Exhibits
The exhibits to the Annual Report of Delta and
Pine Land Company filed herewith are listed on Page 58.
4. Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
August 31, 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on November 25, 2002.
DELTA AND PINE LAND COMPANY
(Registrant)
/s/ Jon E. M. Jacoby November 25, 2002
--------------------------------------------
By: Jon E. M. Jacoby, Chairman of the Board
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ W. Thomas Jagodinski President, Chief Executive Officer, November 25, 2002
-------------------------------------------- and Director
W. Thomas Jagodinski (Principal Executive Officer)
/s/ R. D. Greene Vice President - Finance, November 25, 2002
-------------------------------------------- Treasurer and Assistant Secretary
R. D. Greene (Principal Financial and
Accounting Officer)
/s/ Murray Robinson Vice Chairman and Director November 25, 2002
--------------------------------------------
F. Murray Robinson
/s/ Stanley P. Roth Vice Chairman and Director November 25, 2002
--------------------------------------------
Stanley P. Roth
/s/ Nam-Hai Chua Director November 25, 2002
--------------------------------------------
Nam-Hai Chua
/s/ Joseph M. Murphy Director November 25, 2002
--------------------------------------------
Joseph M. Murphy
/s/ Rudi E. Scheidt Director November 25, 2002
--------------------------------------------
Rudi E. Scheidt
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, W. Thomas Jagodinski, certify that:
1. I have reviewed this annual report of Delta and Pine Land Company;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of D&PL as of, and for, the periods
presented in this annual report.
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions
about the effectiveness of the disclosure
controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a
significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 25, 2002 /s/ W. Thomas Jagodinski_________
W. Thomas Jagodinski
President, Chief Executive Officer and
Director
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, R. D. Greene, certify that:
1. I have reviewed this annual report of Delta and Pine Land Company;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this annual
report; and
3. Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly
present in all material respects the financial condition, results
of operations and cash flows of D&PL as of, and for, the periods
presented in this annual report.
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this annual
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions
about the effectiveness of the disclosure
controls and procedures based on our evaluation
as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 25, 2002 /s/ R. D. Greene___________________
R. D. Greene
Vice President-Finance, Treasurer and
Assistant Secretary
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS OF DELTA AND PINE LAND COMPANY:
We have audited in accordance with auditing standards generally accepted in the
United States, the 2002 financial statements of Delta and Pine Land Company
included in this Form 10-K. Our audit was made for the purpose of forming an
opinion on the basic 2002 financial statements taken as a whole. The schedule
listed in the Index of Part IV, Item 15(a)2, is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic 2002
financial statements. The schedule has been subjected to the auditing procedures
applied in the audit of the basic 2002 financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic 2002 financial statements taken as a
whole.
/s/ KPMG LLP
Memphis, Tennessee
October 25, 2002
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO DELTA AND PINE LAND COMPANY:
We have audited in accordance with auditing standards generally accepted in the
United States, the financial statements of Delta and Pine Land Company included
in this Form 10-K. Our audits were made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule listed in the
Index of Part IV, Item 14(a)2, is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Memphis, Tennessee,
October 26, 2001.
This is a copy of the audit report previously issued by Arthur Andersen LLP in
connection with Delta and Pine Land Company's filing on Form 10-K for the year
ended August 31, 2001. This audit report has not been reissued by Arthur
Andersen LLP in connection with this filing on Form 10-K. See Exhibit 23.02 for
further discussion.
SCHEDULE II
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Description Balance at Charged Charged to Balance
Beginning to Costs Other at End
of and Accounts Deductions of
Period Expenses Period
------------------------------------------------------------------------------------------------------------------------
Fiscal year ended August 31, 2000
Allowance for doubtful accounts $ 475 $ 643 $ - $ (27)(a) $ 1,091
Inventory valuation reserve $ 14,108 $ 8,500 $ - $ (15,001)(b) $ 7,607
Fiscal year ended August 31, 2001
Allowance for doubtful accounts $ 1,091 $ 153 $ - $ (57)(a) $ 1,187
Inventory valuation reserve $ 7,607 $ 10,818 $ (49)(c) $ (7,391)(b) $ 10,985
Fiscal year ended August 31, 2002
Allowance for doubtful accounts $ 1,187 $ 228 $ (303)(c) $ (12)(a) $ 1,100
Inventory valuation reserve $ 10,985 $ 10,335 $ 11 (c) $ (12,109)(b) $ 9,222
(a) Write off of uncollectible accounts, net of recoveries
(b) Disposal and/or write-off of inventory.
(c) Amount charged to cumulative translation adjustment for fluctuations
in non-U.S. dollar denominated reserves.
INDEX
EXHIBITS TO ANNUAL REPORT ON FORM 10-K
YEAR ENDED AUGUST 31, 2002
DELTA AND PINE LAND COMPANY
Exhibits(1) Description
2.01 Agreement and Plan of Merger dated as of May 8, 1998, by and between
Monsanto Company and Delta and Pine Land Company. (2)
2.02 Termination Option Agreement dated as of May 8, 1998, by and between
Monsanto, Company and Delta and Pine Land Company. (2)
3.01 Restated Certificate of Incorporation of the Registrant dated
June 11, 1993.
3.02 Amended and Restated By-Laws of the Registrant dated April 26, 1993.
4.01 Certificate of Designation, Convertible Preferred Stock of Delta
and Pine Land Company. (3)
4.02 Specimen Certificate representing the Common Stock, par
value $.10 per share.
4.03 Letter from Registrant to John Hancock Mutual Life Insurance Company
regarding certain registration rights dated June 28, 1993.
4.04 Rights Agreement, dated as of August 13, 1996, between Delta and Pine
Land Company and Harris Trust and Savings Bank, including the form of
Right Certificate and related form of Election to Purchase as Exhibit A
and the Summary of Rights to Purchase Preferred Shares as Exhibit B.
(4)
4.05 Amendment No. 1 to the Rights Agreement dated May 8, 1998, by and
between Delta and Pine Land Company and the Harris Trust
and Savings Bank. (2)
4.06 Amendment No. 2 to the Rights Agreement dated May 8, 1998 by
and between Delta and Pine Land Company and the Harris Trust
and Savings Bank. (14)
4.07 Certificate of Designations of the rights and privileges of the
shares of junior participating preferred stock created on
August 13, 1996, to be filed pursuant to Section 151 of the
Delaware General Corporation Law. (4)
10.05 Incentive Bonus Program. (1)(6)
10.06 Retirement Plan of D&PL, dated January 2, 1992, Amendment No. 1 to
the Plan dated April 30, 1992, Amendment No. 2 to the
Plan dated December 20, 1992, and Amendment No. 3 to the Plan dated
October 6, 1994. (1)(5)
10.08 Supplemental Executive Retirement plan dated May 22, 1992, and
effective January 1, 1992. (1)(6)
10.10 1993 Stock Option Plan of Registrant, as adopted on June 11,1993.(1)(6)
10.11 Asset Purchase agreement between Delta and Pine Land Company and
Cargill, Inc. dated May 2, 1994 (8)
10.13 1994 Saving Plan of Registrant, as adopted on April 1, 1994, Amendment
No. 1 dated May 1, 1994. (5)(6)
10.15 Hartz Cotton Acquisition Agreement dated February 2, 1996 among
Monsanto Company ("Monsanto"), Hartz Cotton, Inc.
("Hartz Cotton"), Delta and Pine Land Company (the "Company")
and Paymaster Technology Corp. ("PTC"). (3)
10.16 Trademark License Agreement dated February 2, 1996 between
Monsanto and D&PL. (3)
10.17 Registration Rights Agreement between D&PL and Monsanto dated
February 2, 1996. (3)
10.18 Temporary Services Agreement dated February 2, 1996 between
Monsanto, D&PL, and PTC. (3)
10.19 Research Facility Lease with Option to Purchase dated February 2,
1996 between Monsanto and PTC. (3)
10.20 Greenhouse Lease dated February 2, 1996 between Monsanto and PTC. (3)
10.21 Research Agreement dated February 2, 1996 between Monsanto and PTC. (3)
10.22 Partnership Agreement dated February 2, 1996 between D&PL and
Monsanto.(3)
10.23 Marketing Services Agreement dated February 2, 1996 between D&PL,
Monsanto and D&M Partners. (3)
10.24 Bollgard Gene License and Seed Services Agreement dated February 2,
1996 between Monsanto, D&M Partners, and D&PL. (3)
10.25 Roundup Ready Gene License and Seed Services Agreement dated February
2, 1996 between Monsanto, D&M Partners and D&PL. (3)
10.26 Option Agreement dated February 2,1996 between Monsanto and D&PL.(3)(6)
10.27 Agreement between the D&PL Companies and the Sure Grow Companies,
Sure Grow Shareholders and Sure Grow Principals dated May
20, 1996. (9)
10.28 Delta and Pine Land Company 1995 Long-Term Incentive Plan, as
adopted on February 6, 1996. (6)(10)
10.29 Amendment to Agreements dated as of December 8, 1999, by and
between Monsanto Company, Registrant, D&M
Partners, a partnership of Monsanto and D&PL, and Paymaster
Technology Corp. (12)
10.30 D&M International Operating Agreement on March 10, 1995, between
Delta and Pine Land Company, through its
wholly-owned subsidiary D&PL International Technology Corp.
and Monsanto Company. (13)
10.31 Bollgard II Gene License and Seed Services Agreement dated
December 11, 2000. (11)
10.32 Roundup Ready Soybean License and Seed Services Agreement and the
Amended and Restated Licensee Incentive Agreement. (11)
10.33 Bollgard Gene License Agreement for the Republic of Mexico. (11)
10.34 Roundup Ready License Agreement for the Republic of South Africa
dated September 24, 2001. (11)
10.35 Glyphosate-Tolerant Cotton Agreement - Australia dated July 3,2001.(11)
10.36 Bollgard Gene License Agreement by and between Monsanto Company,
Delta and Pine Land Company, D&PL International Technology
Corp., and D&M International and Amendment. (15)
10.37 Redemption Agreement dated as of May 28, 2002 among D&M International,
L.L.C., D&PL International Technology Corp.,
Pharmacia Corporation, solely for the purposes of Section 1.2c
and Articles II and III hereof, and Monsanto Company, and,
solely for the purposes of Section 3.2 hereof, Delta and
Pine Land Company. (15)
16.00 Letter from Arthur Andersen LLP to the Securities and Exchange
Commission dated May 14, 2002 regarding change in
certifying accountant (16)
21.01 Subsidiaries of the Registrant. (15)
23.01 Independent Auditors' Consent. (15)
23.02 Notice Regarding Consent of Arthur Andersen LLP. (15)
99.01 Certification of Periodic Financial Report Pursuant to 18 U.S.C.
Section 1350 (15)
99.02 Certification of Periodic Financial Report Pursuant to 18 U.S.C.
Section 1350 (15)
-------------------------
(1) All incorporated by reference from Registration Statement on form S-1,
File No. 33-61568, filed June 29, 1993 except as
otherwise noted herein.
(2) Incorporated by reference from Form 8-K filed May 14, 1998
(3) Incorporated by reference from Form 8-K, File No. 000-14136,
filed February 19, 1996
(4) Incorporated by reference from Form 8-A, File No. 000-21293,
filed September 3, 1996
(5) Incorporated by reference from Form 10-K, File No. 00-21788,
filed November 22, 1995
(6) Represents management contract or compensatory plan
(7) Incorporated by reference from Form 10-Q, File No. 000-21788,
filed July 14, 1995
(8) Incorporated by reference from Form 8-K filed May 16, 1994
(9) Incorporated by reference from Form 8-K, File No. 000-21788,
filed June 4, 1996
(10) Incorporated by reference from Form 10-K, File No. 001-14136,
filed November 27, 1996
(11) Incorporated by reference from Form 10-K filed November 29, 2001
(12) Incorporated by reference from Form 8-K filed May 18, 2000
(13) Incorporated by reference from Form 8-K filed September 14, 2000
(14) Incorporated by reference from Form 10-K filed November 24, 1998
(15) Filed herewith
(16) Incorporated by reference from Form 8-K filed May 17, 2002
EXHIBIT 21.01
SUBSIDIARIES OF REGISTRANT
SUBSIDIARY PLACE OF INCORPORATION
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ATLED CORPORATION USA
D&M INTERNATIONAL, LLC USA
D&M PARTNERS USA
D&PL ARGENTINA, INC. USA
D&PL CHINA, INC. USA
D&PL CHINA PTE, LTD. SINGAPORE
D&PL INVESTING CORP. USA
D&PL INVESTMENTS, INC. USA
D&PL MEXICO, INC. USA
DELTAPINE PARAGUAY, INC. USA
D&PL SOUTH AFRICA, INC. USA
D&PL INTERNATIONAL TECHNOLOGY CORP. USA
DELTA AND PINE LAND INTERNATIONAL, LTD. VIRGIN ISLANDS
DELTA PINE DE MEXICO, S.A. de C.V. MEXICO
DELTAPINE AUSTRALIA PTY. LIMITED AUSTRALIA
GREENFIELD SEED COMPANY USA
HEBEI JI DAI COTTONSEED TECHNOLOGY COMPANY, LTD. CHINA
PAYMASTER TECHNOLOGY CORP. USA
TURK DELTAPINE, INC. USA
SURE GROW SEED, INC. USA
ELLIS BROTHERS SEED, INC. USA
ARIZONA PROCESSING, INC. USA
MISSISSIPPI SEED, INC. USA
D&PL Semillas LTD. Costa Rica
CDM MandIyu S.R.L. Argentina
Delta and Pine Land Hellas Monoprosopi, e.P.E. Greece
D&PL BraSil, Ltda. Brazil
Anhui An Dai Cottonseed Technology Company, Ltd. China
D&PL Technology Holding Corp. USA
D&M Brasil algodao, Ltda Brazil
MDM Maeda DeltaPine Monsanto Algodao Ltda. Brazil
Exhibit 23.01
Independent Auditors' Consent
The Board of Directors
Delta and Pine Land Company:
We consent to the incorporation by reference in the registration statements
(Nos. 333-21049 and 333-74168) on Form S-8 of Delta and Pine Land Company of our
reports dated October 25, 2002, with respect to the consolidated balance sheet
of Delta and Pine Land Company as of August 31, 2002, and the related
consolidated statements of operations, stockholders' equity and comprehensive
income, and cash flows for the year ended August 31, 2002, and all related
financial statement schedules, which reports appear in the August 31, 2002,
annual report on Form 10-K of Delta and Pine Land Company.
/s/ KPMG LLP
Memphis, Tennessee
November 25, 2002
EXHIBIT 23.02
NOTICE REGARDING CONSENT OF ARTHUR ANDERSEN LLP
Section 11(a) of the Securities Act of 1933, as amended (the "Securities Act"),
provides that if part of a registration statement at the time it becomes
effective contains an untrue statement of a material fact, or omits a material
fact required to be stated therein or necessary to make the statements therein
not misleading, any person acquiring a security pursuant to such registration
statement (unless it is proved that at the time of such acquisition such person
knew of such untruth or omission) may assert a claim against, among others, an
accountant who has consented to be named as having certified any part of the
registration statement or as having prepared any report for use in connection
with the registration statement.
On May 15, 2002, the Board of Directors of Delta and Pine Land Company ("D&PL"),
upon recommendation of its Audit Committee, decided to no longer engage Arthur
Andersen LLP ("Arthur Andersen") as D&PL's independent public accountants,
effective immediately. For additional information, see D&PL's Current Report on
Form 8-K filed with the Securities and Exchange Commission ("SEC") on May 17,
2002.
After reasonable efforts, D&PL has been unable to obtain Arthur Andersen's
written consent to the incorporation by reference into D&PL's registration
statements (Form S-8 Nos. 333-21049 and 333-74168) (the "Registration
Statements") of Arthur Andersen's audit report with respect to D&PL's
consolidated financial statements as of August 31, 2001, and for the two years
in the period then ended. Under these circumstances, Rule 437a under the
Securities Act permits D&PL to file this Annual Report on Form 10-K, which is
incorporated by reference into the Registration Statements, without a written
consent from Arthur Andersen. As a result, with respect to transactions in
D&PL's securities pursuant to the Registration Statements that occur subsequent
to the date this Annual Report on Form 10-K is filed with the Securities and
Exchange Commission, Arthur Andersen will not have any liability under Section
11(a) of the Securities Act for any untrue statements of a material fact
contained in the financial statements audited by Arthur Andersen or any
omissions of a material fact required to be stated therein. Accordingly, an
acquiror of D&PL's securities would be unable to assert a claim against Arthur
Andersen under Section 11(a) of the Securities Act.
EXHIBIT 99.01
Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, and in connection with the annual report on Form
10-K of Delta and Pine Land Company for the fiscal year ended August 31, 2002,
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), the undersigned W. Thomas Jagodinski, the President and Chief
Executive Officer hereby certifies the Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
and the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of D&PL.
Signature Title Date
/s/ W. Thomas Jagodinski President, Chief Executive Officer November 25, 2002
-----------------------------------
W. Thomas Jagodinski and Director
(Principal Executive Officer)
This certificate is made solely for purpose of 18 U.S.C. Section 1350, subject
to the knowledge standard contained therein, and not for any other purposes.
EXHIBIT 99.02
Certification of Periodic Financial Report Pursuant to 18 U.S.C. Section 1350
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, and in connection with the annual report on Form
10-K of Delta and Pine Land Company for the fiscal year ended August 31, 2002,
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), the undersigned R. D. Greene, the Vice President-Finance, Treasurer,
and Assistant Secretary hereby certifies the Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934
and the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of D&PL.
Signature Title Date
/s/ R. D. Greene Vice President - Finance, November 25, 2002
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R. D. Greene Treasurer and Assistant Secretary
(Principal Financial and
Accounting Officer)
This certificate is made solely for purpose of 18 U.S.C. Section 1350, subject
to the knowledge standard contained therein, and not for any other purposes.