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, 2003
or
------- Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 000-21788
DELTA AND PINE LAND COMPANY
(Exact name of registrant as specified in its charter)
Delaware 62-1040440
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) 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
----- -----
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. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes X No
----- -----
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 February
28, 2003, as reported on the New York Stock Exchange, was approximately
$694,034,000. 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, 2003, Registrant had 38,086,128 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 15,
2004. (Items 10, 11, 12 13 and 14 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
1
Bollgard(R) ("Bollgard") 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, commonly referred to as Roundup Ready(R) ("Roundup
Ready") 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 cotton
planting seed 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 (iii) to a lesser degree, 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
2003, 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. Pursuant to the closing of a merger on April 16, 2003,
Pharmacia Corporation merged with and into a wholly-owned subsidiary of Pfizer
Inc. Pharmacia survived the merger as a wholly-owned subsidiary of Pfizer Inc.
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 on that date. With respect to events occurring
between March 31, 2000 and April 16, 2003, this entity is referred to as
"Pharmacia". With respect to events occurring after April 16, 2003, the entity
referred to as "Pharmacia" is that entity which on that date became a
wholly-owned subsidiary of Pfizer Inc. With respect to events occurring after
March 31, 2000, the entity formed as Monsanto Ag Company and renamed Monsanto
Company (NYSE: MON) on March 31, 2000, 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 May 2002, 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 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
and 51% owned by Chinese parties. Under the terms of the joint venture
agreement, An Dai produces, conditions and sells our varieties of acid-delinted
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 was completed in October 2003
and the facility is now 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 varieties of acid-delinted
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. Monsanto is responsible for obtaining these
government approvals and has announced approval may not occur until 2005. MDM is
51% owned by D&M International, LLC and 49% owned by Maeda Administracao e
Participacoes S/A (formerly 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.
However, our joint venture in Hebei province, Ji Dai, signed a distribution
agreement with a party in the Henan province and distributed seed there in
fiscal 2003. We expect to continue to expand our business in China through our
existing joint ventures, Ji Dai and An Dai.
In May 2002, we established DeltaMax Cotton, LLC ("DeltaMax"), a limited
liability company jointly owned with Verdia, Inc. ("Verdia", formerly known as
MaxyAg, Inc.), a wholly-owned subsidiary of Maxygen, Inc. DeltaMax was formed to
create, develop and commercialize value-enhancing traits for the cottonseed
market that will complement and/or compete with traits available today. It is
currently focusing on a glyphosate-tolerant strategy, an insect-resistance
strategy and a nematode-resistance strategy for use in cotton. Commercialization
of new traits developed by this venture is not expected until after 2009.
DeltaMax 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.
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 maintains winter nursery facilities, produces cottonseed
varieties for export to other countries and processes foundation seed grown in
that country. We maintain a winter nursery and foundation seed operation in
Canas, Costa Rica and have 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, containing
Monsanto's Bollgard and Roundup Ready technologies, in Australia.
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, 2003, we employed a total of 542 full time employees
worldwide, excluding approximately 109 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 March 1992 and subsequently revised in April 1993, October 1993,
February 1996, December 1999, January 2000 and March 2003, 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") among D&PL, Monsanto and D&M Partners. 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. Monsanto determines the licensing fee growers pay for use of
Bollgard technology. Growers may receive discounts and/or rebates of licensing
fees under certain crop destruct, crop replant and other programs. 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 certain distributor/dealer payments), and we
receive the remainder of net sublicense revenue 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 November 4, 2018.
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 net sublicense
fees. 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. On December 23, 2002, Monsanto announced
that it had received U.S. regulatory clearance for Bollgard II. We
commercialized limited quantities of our Bollgard II cotton varieties in the
U.S. during fiscal 2003.
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. We may commercialize varieties
containing Syngenta's insect resistance technology if we reach a
commercialization agreement and Syngenta obtains U.S. government regulatory
approval. Syngenta has announced that it expects to receive full U.S. regulatory
approval in time for the 2005 season.
In January 2003, we announced a collaboration agreement with Dow AgroSciences
LLC ("DAS") under which we will develop, test and evaluate elite cotton
varieties containing DAS insect resistance traits. We may commercialize
varieties containing DAS insect resistance technology if we reach a
commercialization agreement and DAS obtains U.S. government regulatory approval.
Herbicide Tolerance for Cotton
In February 1996, D&PL, Monsanto and D&M Partners 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, December 1999, January 2000 and March 2003, 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.
Monsanto determines the licensing fee growers pay for use of Roundup Ready
technology. Growers may receive discounts and/or rebates of licensing fees under
certain crop destruct, crop replant and other programs. The distributors/dealers
who coordinate the farmer licensing process receive a portion of the technology
sublicensing fee. After the dealers and distributors are compensated, D&M
Partners pays Monsanto a royalty equal to 70% of the net sublicense fee
(technology sublicensing fees less certain distributor/dealer payments), and we
receive the remainder of net sublicense revenue for our services. 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 January 16, 2018.
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 net
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.
Cotton Technology Licenses for Countries Outside the United States
In February 1996, D&PL and Monsanto executed an Option Agreement (subsequently
amended in December 1999) which provides us with option rights for an exclusive
license for Monsanto's Bollgard and other genes active against lepidopteran
insects in each country outside the United States where Monsanto commercializes
such genes in cotton (except for Australia where we have an option for a
non-exclusive license to such genes and India where we have no option rights to
such genes), option rights to non-exclusive licenses to Roundup Ready genes in
cotton in all countries outside the United States, and option rights to
non-exclusive licenses for all countries for any gene that may be commercialized
by Monsanto that enhances the fiber characteristics of cotton. The terms of such
licenses must be offered and negotiated in good faith. All such licenses that
are non-exclusive must provide us most favored licensee status. The Option
Agreement remains in effect so long as the Bollgard Agreement and Roundup Ready
Agreement for the United States remain in effect. Pursuant to the Option
Agreement, Monsanto and D&PL (or D&PL's affiliates or joint venture companies)
have entered into exclusive Bollgard licenses for seven countries outside the
United States and a non-exclusive license for lepidopteran active genes for
Australia, as well as non-exclusive Roundup Ready licenses for four countries
outside the United States.
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 Sulfonylurea 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(R)
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. These 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, 2003 and 2002:
2003 2002
--------------- ---------------
Cotton
Conventional 20 24
Bollgard 5 6
Roundup Ready 14 16
Bollgard/Roundup Ready 14 16
Bollgard II/Roundup Ready 2 -
--------------- ---------------
55 62
=============== ===============
Soybeans
Conventional 1 2
Roundup Ready 15 10
STS 2 2
--------------- --------------
18 14
=============== ==============
In addition to the above, in 2003, we had 76 experimental cotton varieties and 6
experimental soybean varieties in late stage development prior to
commercialization. In 2002, we had 59 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 3,000 acres in the U.S., primarily for research purposes
and for production of cotton and soybean foundation seed. Additionally, 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 late in the second fiscal quarter
through the end of the third 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 the 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 nine geographic regions and consider the estimated number of seeds
contained in each bag which may vary by variety, location grown, and other
factors.
International export revenues are recognized upon the later of when the seed is
shipped or the date letters of credit (or instruments with similar security
provisions) 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. 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 inclement weather) by a certain date, a portion of the price of the seed
and technology fees are forgiven or rebated to the farmer. The amount of the
refund and the impact to D&PL depends on a number of factors including whether
the farmer can replant the crop that was destroyed. We record monthly estimates
to account for these programs. The majority of program rebates occur during the
second and third quarters. Essentially all material claims under these programs
have occurred or are accounted for by fiscal year end.
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.
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.
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, People's Republic
Canas, Costa Rica 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
The following sets forth all known pending litigation and a description of other
legal matters.
Product Claims
D&PL and Monsanto are named as defendants in a lawsuit 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. This case is presently on appeal to the 7th Appellate
Court District (Amarillo Division). In this case the plaintiff alleged 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(R) 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 February 2,
1996 Roundup Ready Gene License and Seed Service Agreement (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(R) glyphosate tolerance gene and Monsanto has
agreed to do so. D&PL will not have a right of indemnification from Monsanto,
however, for any claim involving defective varietal characteristics separate
from or in addition to the herbicide tolerance gene and such claims are
contained in this litigation.
D&PL was named as a defendant in two lawsuits filed in the 110th Judicial
District Court of Floyd County, Texas; one suit was filed October 16, 2002, and
the other November 21, 2002. In each of these cases the plaintiffs allege that
the seed purchased from D&PL failed to perform as represented and seek
compensatory damages for crop losses incurred during the 2002 growing season.
Although these lawsuits involve a cotton variety that contains the Roundup Ready
gene, no claim against Monsanto was alleged, nor was there any allegation that
Monsanto technology caused or contributed to plaintiffs' claims. Thus, it does
not presently appear that Monsanto is contractually obligated to defend and/or
indemnify D&PL in the Floyd County cases. D&PL is presently investigating these
claims to determine the causes of the alleged problems.
D&PL and Monsanto and various retail seed suppliers were named 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 was removed to United States District Court
for the District of South Carolina, Beaufort Division, but has now been remanded
back to Hampton County. 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(R) 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 in four lawsuits filed in the State of Mississippi. One 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. Two lawsuits were filed in the Circuit Court of Holmes
County, Mississippi; one was filed March 14, 2002, and the second on August 19,
2002. Both cases include numerous plaintiffs who allege that certain cotton seed
sold by D&PL was improperly mixed or blended and failed to perform as
advertised. In the second Holmes County lawsuit, D&PL has filed a Third Party
Complaint which seeks a declaration that its insurers are responsible for the
cost of defending the action and for full indemnification of D&PL in the event a
judgment is rendered against it. Another 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.
D&PL, along with Monsanto, were named 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. The cases were consolidated into a single action pending before
the United States District Court for the Middle District of Georgia, but were,
on motion of D&PL and Monsanto, transferred to the United States District Court
for the Eastern District of Missouri by Order dated August 26, 2003. 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.
All lawsuits related to product claims seek monetary damages. See Note 16 of the
Notes to Consolidated Financial Statements in Item 8 for further details about
product claims.
The case filed against D&PL in the Circuit Court of Lowndes County, Mississippi,
on July 11, 2001, and the case filed against D&PL in the Superior Court of the
County of Colquit, Georgia, on October 5, 2001, have been resolved. These cases
were resolved, both individually and collectively, without a material impact on
the Company.
Other Legal Matters
On July 15, 2003, D&PL received a notice from Monsanto asserting that disputes
exist among Monsanto, D&PL and D&M Partners pertaining to four matters under the
Bollgard and Roundup Ready Licenses for the United States and two matters under
license agreements for Argentina and the Republic of South Africa, respectively.
Monsanto's notice of dispute asserts that D&PL's failure to address these issues
would be a breach of D&PL obligations under the relevant agreements and reserves
all of Monsanto's rights under these agreements. In August 2003, D&PL and D&M
Partners responded to Monsanto's positions on each issue and notified Monsanto
of three additional disputes, each concerning Monsanto's compliance with its
obligations under the Bollgard and Roundup Ready Licenses for the United States.
In accordance with the dispute resolution provisions of the subject agreements,
the issues raised in Monsanto, D&PL and D&M Partners' notices have been
submitted to a panel of senior executives. D&PL is committed to participating in
good faith resolution of the issues in dispute. Any issues not resolved by the
executive panel may be submitted to binding arbitration as provided in the
relevant agreements.
On July 23, 2003, D&PL was named as a defendant along with a local resident in a
lawsuit filed in the Circuit Court of Dunklin County, Missouri. This case was
removed to the United States District Court for the Eastern District of
Missouri, Southwest Division, on August 22, 2003, and a motion to remand the
case back to state court is now pending. The lawsuit alleges that D&PL committed
certain business torts, including malicious prosecution of a civil action,
interference with contractual relationships and other claims when D&PL pursued a
claim in an earlier lawsuit against the plaintiff in this litigation. The
defense of this claim has been tendered to D&PL's liability and insurance
carriers. D&PL's insurance carriers have agreed to provide a defense to this
action and indemnity subject to the reservation of certain specific rights. This
case is in the very early pre-trial phase and initial discovery is now ongoing.
On December 11, 2002, D&PL filed a suit in the Circuit Court of Holmes County,
Mississippi, against Nationwide Agribusiness and other insurance companies
seeking a declaration that the allegations of the Holmes County, Mississippi
lawsuits referenced under "Product Claims" immediately above are covered by
D&PL's comprehensive general liability and umbrella liability policies. This
case was removed by the defendants to the United States District Court for the
Southern District of Mississippi where a Motion to Remand the case to state
court is now pending. In this litigation, D&PL seeks a declaration that its
insurers are responsible for the cost of defending such actions, and full
indemnification of D&PL in the event a judgment is rendered against it based
upon the seed mix claim alleged by plaintiffs. D&PL alleges in this litigation
that the allegations of plaintiffs' complaint are covered by one or more of
D&PL's insurance policies issued by the defendant insurance companies.
On November 20, 2002, D&PL filed suit in the Circuit Court of Washington County,
Mississippi, against its fire insurance carrier, Reliance Insurance Company of
Illinois. That suit seeks recovery of seed inventory lost, damaged or destroyed
during a fire that occurred in November 1999 at D&PL's Hollandale, Mississippi
facility. A Stay Order has now been entered in this case pursuant to the powers
of the Receiver of Reliance Insurance Company of Illinois, which is now in
liquidation.
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 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. This suit is in the pretrial phase.
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.
On January 14, 2003, the Court denied DITC's motion to dismiss, and the case in
now in discovery.
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 an 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
$669,000 at October 31, 2003, 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 seed available for sale in Central
America and Mexico.
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 judge to whom this case was assigned has
retired and a new judge has been appointed. On September 12, 2003, Monsanto
amended its answer to include four counterclaims against D&PL, alleging breach
of contract, fraudulent inducement, and negligent misrepresentation. The
fraudulent inducement and negligent misrepresentation claims allege that D&PL
misrepresented the status of the Department of Justice's investigation into
D&PL's acquisition of the Sure Grow companies prior to the signing of the
Agreement. The breach of contract claim alleges that D&PL failed to notify
Monsanto that D&PL had sustained a material adverse change, where the alleged
adverse change resulted from the conduct that D&PL seeks damages for in this
litigation. The breach of contract claim also alleges that D&PL failed to use
requisite efforts to inform Monsanto that Monsanto was not using requisite
efforts to complete the transaction. Monsanto is seeking unspecified damages for
its counterclaims, including the $81 million paid by Monsanto to D&PL as a
termination fee and related expenses. D&PL answered the counterclaims, denying
all liability, and D&PL intends to vigorously defend against these
counterclaims. The parties are currently in discovery, and the Court has ordered
an April 2004 fact-discovery deadline as well as other deadlines from that date
until April 15, 2005, when pre-trial statements are due to the court. Therefore,
the trial is not expected to occur prior to April 15, 2005.
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, 2003
Market Price Range - Low $17.96 $19.18 $18.70 $21.78
High 20.79 20.96 24.02 25.30
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 $0.27 and $0.20 per share were paid in 2003 and 2002,
respectively. The Board of Directors anticipates that quarterly dividends of
$0.10 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 2003 were $10.3 million and should approximate $15.2 million in 2004.
Aggregate dividends paid on preferred shares in 2003 were $0.3 million and
should approximate $0.4 million in 2004.
On October 31, 2003, there were approximately 6,000 shareholders of our
38,086,128 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 3,983,982 $ 18.82 1,121,686
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,
----------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
----------- ------------ ----------- ----------- ------------
Operating Results:
Net sales and licensing fees $281,276 $257,807 $305,806 $301,181 $260,465
Special charges and unusual
items(1) (962) - (6,301) 71,233 (29,884)
Net income 27,805 30,339 32,307 79,326 7,573
Balance Sheet Summary:
Current assets $355,261 $308,468 $337,737 $313,701 $217,543
Current liabilities 204,050 174,124 208,041 215,315 174,947
Working capital 151,211 134,344 129,696 98,386 42,596
Total assets 431,552 383,142 411,521 390,134 295,758
Long-term debt 1,557 1,176 2,836 2,482 17,000
Stockholders' equity 217,107 202,207 188,408 159,628 89,404
Per Share Data:
Net income - Diluted $0.70 $0.76 $0.81 $1.98 $0.18
Book value 5.70 5.27 4.90 4.15 2.33
Cash dividends per common share 0.27 0.20 0.15 0.12 0.12
Weighted average number of shares
used in net income per share
calculation - Diluted 39,594 39,781 40,111 40,159 40,973
----------------------------------------------------------------------------------------------------------------------
(1) In 2003, we reported (a) a $0.6 million special charge for the closings of
two U.S. locations and (b) a $0.4 million special charge for reductions in
the number of employees at an international wholly-owned subsidiary and an
international joint venture. 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. In 2000, we reported the $81 million merger termination
fee, net of related expenses, as an unusual income item. 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Our financial results for the fiscal year ended August 31, 2003, were adversely
impacted by a decrease in cotton acreage planted in the U.S. In a report dated
June 30, 2003, the United States Department of Agriculture ("USDA") reported
that upland cotton acreage planted in the U.S. was expected to be 13.5 million
acres in 2003, down from 13.7 million acres in 2002 and that in cotton-producing
states east of Texas, which represents our most lucrative selling region, cotton
acreage declined almost 400,000 acres. We believe the acreage reduction that
occurred in 2002 was primarily driven by market forces - low cotton fiber
prices, relatively higher soybean and corn prices, and the late enactment of the
2002 Farm Bill. In 2003, we believe inclement weather, including excessive
spring rains, caused the additional decrease in acreage in 2003 in areas east of
Texas. Crop destruct and replant program claims also increased due to heavy
rains, hail storms and high winds in various regions of Texas, Oklahoma, Kansas,
and in the northern areas of the cotton belt east of Texas after cottonseed was
planted. Under the crop destruct program, if a farmer plants transgenic seed and
his crop is destroyed within sixty days of planting, Monsanto, after field
inspection, may forgive or waive the technology fee on the affected acreage. In
some areas, a portion of the seed price may also be refunded to the grower. Crop
destruct and crop replant program claims resulted in higher rebates than we
experienced in 2002, which negatively impacted our financial results.
On a positive note, we were able to increase our revenue in 2003 over 2002
despite the reduction in cotton acres in the U.S. The revenue increase was
primarily due to the introduction of higher-priced varieties, a shift in sales
from single-gene transgenic varieties to more profitable stacked-gene varieties,
and an increase in soybean sales. We successfully introduced a new cotton
variety, DP 555 BG/RR, in 2003 which was priced at a premium to our other cotton
products. The USDA reported that DP 555 BG/RR was planted on almost nine percent
of U.S. cotton acres in 2003. This made it the most popular cotton variety
planted in 2003, its first year of commercial launch. Likewise, growers
purchased more stacked varieties in 2003 compared to 2002. Stacked varieties
contain both Monsanto's Bollgard and Roundup Ready gene technologies and carry
higher fees than single gene products. Soybean sales also increased in 2003 due
to a strong demand for our varieties, which performed well in 2002. Our gross
margin percentage was essentially unchanged in 2003 compared to 2002 despite the
introduction of higher priced products and price increases among our picker
cottonseed product portfolio. This was caused in large part by increased costs
per unit of cottonseed sold. Wet weather that occurred during the 2002 harvest
season severely limited the amount of seed we were able to purchase from growers
in the Mid-South and we were forced to ship seed from the western U.S. and
Australia. This resulted in increases in our seed costs.
Results of operations for the International segment were lower in 2003 compared
to 2002, primarily due to lower sales in Australia, Brazil and Greece, slightly
offset by an increase in sales in China. The planted acreage to cotton in
Australia declined again in 2003 due to a prolonged drought. Despite an increase
in unit sales in Brazil, revenues were lower due to the weakness of the
Brazilian currency against the U.S. dollar. In Greece, which has been one of our
most profitable international markets, sales were lower in 2003 as compared to
2002 due to excess inventory levels at our Greek distributor.
Strategic Transactions and Events
In August 2003, we announced that we would begin packaging our cottonseed
varieties in bags containing approximately 250,000 seed in the 2004 selling
season, as compared to historically packaging our cottonseed varieties in
50-pound bags. Pima and Acala varieties will continue to be packaged in 50-pound
bags. This is intended to simplify pricing and production planning, and will
help standardize technology fees and make inventory management for our
distribution partners and farmers more precise. The switch to seed-count
packaging will result in variable bag weights.
In January 2003, we announced a collaboration agreement with Dow AgroSciences
LLC ("DAS") under which we will develop, test and evaluate elite cotton
varieties containing DAS insect resistance traits. We may commercialize
varieties containing DAS insect resistance technology if we reach a
commercialization agreement and DAS obtains U.S. government regulatory approval.
No commercialization agreement has been reached to date.
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. We may commercialize varieties containing Syngenta's insect
resistance technology if we reach a commercialization agreement and Syngenta
obtains U.S. government regulatory approval. Syngenta has announced that it
expects to receive full U.S. regulatory approval in time for the 2005 season. No
commercialization agreement has been reached to date.
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. 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. We have begun cotton plant
transformation of both herbicide tolerance and insect resistance traits.
Other Matters
With respect to our suit against Pharmacia and Monsanto Company, the parties
remain in discovery. The judge in our case retired during the year and another
judge was assigned. The case had been originally scheduled for trial in January
2004, but this date did not fit within the trial schedule of the newly assigned
judge. A new trial date has not yet been scheduled, but the Court has ordered an
April 2004 fact-discovery deadline as well as other deadlines from that date
until April 15, 2005, when pre-trial statements are due to the Court. Therefore,
the trial is not expected to occur prior to April 15, 2005. On September 12,
2003, Monsanto amended its response to our lawsuit to include four counterclaims
against us. Monsanto is seeking unspecified damages for its counterclaims,
including the $81 million paid by Monsanto to D&PL as a termination fee and
related expenses. We have answered Monsanto's counterclaims and do not believe
we have any liability. We continue to vigorously pursue our lawsuit and defend
Monsanto's counterclaims. Our earnings for the 2003 fiscal year were impacted by
legal expenses of $0.21 per share during the year, as the discovery and other
pre-trial activities have intensified. See Item 3 for further discussion.
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 2004 earnings guidance
later this year. The current price of cotton fiber is at levels that have not
been reached for several years. If cotton fiber prices continue to increase or
maintain present levels, U.S. and global cotton acres in 2004 may increase.
However, as mentioned earlier, other factors must be considered and we do not
believe it is prudent to estimate 2004 cotton plantings at this time.
Furthermore, we are still receiving production seed so our ultimate seed supply
for 2004 is not presently known.
Internationally, we continue to expand our global reach and we seek to improve
the operating results of our existing ex-U.S. operations. In 2003, operating
results in the international segment were lower than 2002 due to several factors
including the drought in Australia, currency issues in Brazil and excess
inventories at our Greek distributor. If the current prices of cotton fiber
remain constant, planted cotton acreage may increase in 2004 in some of our
international markets, including China which is presently importing large
amounts of raw cotton fiber for its spinning mills. We are already seeing
improvements in our Argentina and Brazilian businesses due to political and
economic stability as compared to 2003. In addition, we continue to focus on
converting our conventional seed businesses outside the U.S. to more profitable
transgenic products containing Monsanto's Bollgard and Roundup Ready products.
It is too early to determine whether our businesses in Greece and Australia will
improve in 2004. We will continue to develop new businesses in markets such as
India, Pakistan and portions of Africa.
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 may 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, our
technical services capabilities, know-how, brand recognition and market
position.
Share Repurchase Program/Dividend Policy
Our Board of Directors approved a common stock repurchase plan of up to $50
million in 2000. As of October 31, 2003, D&PL had repurchased 1,351,000 shares
at an aggregate purchase price of $24.9 million under the current purchase
program. We expect to continue purchasing shares in the open market subject to
market price and other considerations. Currently, the quarterly dividend is
$0.10 per share. The Board reviews the dividend policy quarterly. Assuming the
dividend rate is maintained through 2004, the aggregate payments will be $15.2
million to the holders of the 38.1 million common shares outstanding and $0.4
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 2003, our consolidated net sales and licensing fees increased 9.1% to $281.3
million from 2002 sales of $257.8 million. This increase was primarily the
result of (a) an increase in sales of stacked gene products, for which higher
technology licensing fees are charged, (b) an increase in the selling price of
our seed and the introduction of higher-priced cottonseed varieties, primarily
DP 555 BG/RR, and (c) an increase in soybean seed sales, which increased
approximately 26% in 2003 from 2002. In 2003, domestic transgenic cottonseed
sales comprised approximately 96% of total domestic unit sales of cottonseed,
compared to approximately 93% in 2002. Offsetting these increases were lower
international sales and higher sales rebates associated with distributor
payments, crop destruct and crop replant programs. The decrease in international
sales was mainly attributable to a decrease in sales at our joint venture in
Brazil (due to the devaluation of the Brazilian Real), a decrease in export
sales to Greece (due to high inventory levels at our distributor), and lower
sales in Australia (due to the severe drought conditions), offset by an increase
in sales at our joint ventures in China.
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.
Gross Profit
Our consolidated gross profit increased to $102.3 million in 2003 compared to
$92.5 million in 2002. Consolidated gross profit as a percentage of consolidated
net sales and licensing fees in 2003 was constant with 2002 at 36%. Price
increases and the introduction of higher priced varieties were offset by an
increase in cottonseed cost caused by higher raw materials costs and freight
related to sourcing seed production from the western United States and
Australia.
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.
Operating Expenses
Operating expenses before special charges increased to $44.7 million in 2003
from $42.7 million in 2002. This increase is primarily due to increased
compensation, pension and payroll related costs, as well as higher insurance
premiums and professional fees.
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.
Research and Development Expenses
Research and development expenses were virtually unchanged from the prior year
at $18.3 million in 2003 compared to $18.1 million in 2002. The increase was
primarily attributable to increased international research and development
activities.
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.
Selling Expenses
Selling expenses increased 3.8% to $11.0 million in 2003 from $10.6 million in
2002. This increase was primarily attributable to an increase in advertising
expenditures related to the introduction of new varieties.
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.
General and Administrative Expenses
General and administrative expenses increased 10.0% to $15.4 million in 2003
from $14.0 million in 2002. The increase mainly related to increases in
compensation and pension costs, as well as an increase in legal fees related to
licensing activities.
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.
Special Charges
In 2003, we recorded a $0.6 million charge associated with additional expenses
for the closing of our Chandler, Arizona plant and the closing of our facility
in Centre, Alabama and a $0.4 million charge associated with reductions in the
number of employees at our wholly-owned subsidiary in Australia and at our joint
venture in Hebei Province, People's Republic of China.
There were no special charges recorded in 2002. 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.
Interest Income/Expense
Net interest income decreased to $1.1 million in 2003, compared to net interest
income of $1.2 million in 2002. In 2003, interest income was $1.5 million and
interest expense was $0.4 million. Lower interest rates earned on our cash
balances resulted in lower interest earnings during 2003. International interest
expense decreased primarily due to a decrease in interest rates incurred on debt
at our joint venture in Argentina.
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
balances 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 Income and Earnings Per Share
Net income after special charges applicable to common shares was $27.5 million,
$30.1 million and $32.1 million in 2003, 2002 and 2001, respectively. Net income
per share (diluted) after special charges was $0.70, $0.76 and $0.81 in 2003,
2002 and 2001, respectively.
Net income per share (diluted) before Monsanto/Pharmacia legal expenses and
special charges was $0.93, $0.84 and $0.95 in 2003, 2002 and 2001, respectively.
Legal expenses related to our suit against Pharmacia and Monsanto totaled $0.21,
$0.08 and $0.04 per diluted share in 2003, 2002 and 2001, respectively. The cost
of special charges was $0.02 per share in 2003, zero in 2002, and $0.10 per
share in 2001. The number of shares used in diluted earnings per share
calculations was 39.6 million, 39.8 million, and 40.1 million in 2003, 2002 and
2001, respectively.
A reconciliation of net income before legal expenses related to the
Monsanto/Pharmacia litigation and special charges (a non-GAAP measure) to net
income (a GAAP measure) follows:
For the years ended August 31,
------------------------------
2003 2002 2001
--------------- --------------- ---------------
Diluted Earnings per Share:
Net income before legal expenses related to the
Monsanto/Pharmacia litigation and special charges
(a non-GAAP measure) $ 0.93 $ 0.84 $ 0.95
Effect of Monsanto/Pharmacia litigation (0.21) (0.08) (0.04)
Effect of special charges (0.02) - (0.10)
--------------- --------------- ---------------
Net income (a GAAP measure) $ 0.70 $ 0.76 $ 0.81
=============== =============== ===============
Use of non-GAAP Financial Measures
In this filing, we disclose non-GAAP financial measures that exclude legal costs
associated with the D&PL versus Monsanto/Pharmacia litigation and special
charges associated with the closing of two U.S. locations and headcount
reductions at two international locations in 2003 and with the 2001 plant
closing and staff reductions. These non-GAAP financial measures are provided to
enhance the user's overall understanding of our current financial performance
from normal operations and our prospects for the future. We believe that the
amounts excluded in the non-GAAP financial measures are not indicative of our
core operating results. D&PL management uses these non-GAAP financial measures
in analyzing D&PL's performance. These measures should be considered in addition
to results prepared in accordance with GAAP, but should not be considered a
substitute for or superior to GAAP results. The non-GAAP financial measures
included in this filing have been reconciled to the most directly comparable
GAAP measures.
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 for the fiscal year ended August 31, 2003. 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
Revenues from domestic seed sales are recognized when the 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 nine geographic regions and consider the estimated number of
seeds contained in each bag which may vary by variety, location grown, and other
factors.
International export revenues are recognized upon the later of when the seed is
shipped or the date letters of credit (or instruments with similar security
provisions) 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 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.
Domestically, we promote our cotton and soybean seed directly to farmers and
sell our seed through distributors and dealers. 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
inclement weather) by a certain date, a portion of the price of the seed and
technology fees are forgiven or rebated to the farmer. The amount of the refund
and the impact to D&PL depends on a number of factors including whether the
farmer can replant the crop that was destroyed. We record monthly estimates to
account for these programs. The majority of program rebates 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
purities. 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 year end, any seed that is expected to deteriorate
before it can be sold and seed deemed to be excess. 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 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 on existing tax rates and laws, and our
expectations of future earnings. For deferred income taxes, we applied a
composite statutory income tax rate of 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, 2003, we
had recorded deferred tax assets of approximately $5.5 million. We estimate that
our deferred tax assets will be realized; therefore, we have not recorded any
valuation allowances as of August 31, 2003.
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.
Contingent Liabilities
A liability is contingent if the amount is not presently known, but may become
known in the future as a result of the occurrence of some uncertain future
event. D&PL estimates its contingent liabilities based on management's estimates
about the probability of outcomes and their ability to estimate the range of
exposure. Accounting standards require that a liability be recorded if
management determines that it is probable that a loss has occurred and the loss
can be reasonably estimated. In addition, it must be probable that the loss will
be confirmed by some future event. As part of the estimation process, management
is required to make assumptions about matters that are by their nature highly
uncertain. The assessment of contingent liabilities, including legal
contingencies and income tax liabilities, involves the use of critical
estimates, assumptions and judgments. Management's estimates are based on their
belief that future events will validate the current assumptions regarding the
ultimate outcome of these exposures. However, there can be no assurance that
future events, such as court decisions or I.R.S. positions, will not differ from
management's assessments. Whenever practicable, management consults with third
party experts (attorneys, accountants, claims administrators, etc.) to assist
with the gathering and evaluation of information related to contingent
liabilities.
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 applicable, 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.
The licensing fees are due in September, at which time we receive payment. We
then pay Monsanto its royalty for the Bollgard and Roundup Ready licensing fees,
which is recorded as a component of cost of sales. 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 fiscal 2002 and fiscal 2003, 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. Potential uses may be 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
and/or an investment in new markets outside the U.S. Another potential use is
the repurchase in the open market of our shares pursuant to our previously
announced share repurchase program. Once the evaluation of certain transactions
that are currently being considered is completed, we may consider other
potential uses of the remaining cash, including increasing the dividend rate or
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 have had
discussions about 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, $8.3 million, and $7.5 million in fiscal
2003, 2002 and 2001, respectively. We anticipate that capital expenditures will
approximate $8.0 to $10.0 million in 2004.
In the fourth quarter, the Board of Directors authorized a quarterly dividend of
$0.10 per share paid on September 15, 2003, to shareholders of record on August
29, 2003. In the first quarter of fiscal 2004, the Board of Directors authorized
a quarterly dividend of $0.10 per share to be paid on December 12, 2003, to
shareholders of record on November 28, 2003. The Board anticipates that
quarterly dividends of $0.10 per share will continue to be paid in the future;
however, the Board of Directors reviews this policy quarterly. Aggregate
preferred and common dividends should approximate $15.6 million in 2004.
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, 2003, we had repurchased 1,303,000 shares at an
aggregate purchase price of approximately $23.8 million under this program.
During the year ended August 31, 2003, we purchased 310,100 shares at an
aggregate purchase price of $6.1 million under this plan. During the quarter
ended August 31, 2003, we purchased 37,100 shares at an aggregate price of $0.9
million. Between September 1, 2003 and October 31, 2003, we repurchased 48,000
shares at an aggregate purchase price of $1.1 million.
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 2004 working capital needs.
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, the
cost of other crop inputs, 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 of Monsanto, our principal licensor of such technology. We
currently are engaged in a dispute resolution process with Monsanto. (See
Part I, Item 3.) 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 2003, approximately 96% of our cottonseed that was sold
in the United States contained either or both of Monsanto's Bollgard and
Roundup Ready gene technologies, and 94% 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, the war in Iraq, 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. World health concerns about
infectious diseases also affect the conduct of our international business.
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 develop 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
Financial Accounting Standards Board Interpretation No. ("FIN") 46,
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,"
requires the primary beneficiary of a variable interest entity ("VIE") to
consolidate the VIE under certain circumstances. FIN 46 is effective for all new
VIEs created or acquired after January 31, 2003. As amended by FASB Staff
Position FIN 46-6, "Effective Date of FASB Interpretation No. 46, Consolidation
of Variable Interest Entities," FIN 46 is effective for variable interests in a
VIE created before February 1, 2003 at the end of the first interim or annual
period ending after December 15, 2003 (the second quarter of fiscal 2004,
February 28, 2004, for D&PL). We have not determined the impact, if any, that
this statement will have on our 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, 2003, derivative
instruments have not been used to manage foreign currency or interest rate
risks. 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,
2003, was $260,000. A 10% adverse change in the underlying commodity prices upon
which these contracts are based would result in a $100,000 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, 2003, 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, 2003, 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, 2003, 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 net interest income 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, 2003..................................................29
Consolidated Balance Sheets - August 31, 2003 and 2002........................30
Consolidated Statements of Cash Flows - for each of the three years in the
period ended August 31, 2003..................................................31
Consolidated Statements of Stockholders' Equity and Comprehensive Income - for
each of the three years in the period ended August 31, 2003...................32
Notes to Consolidated Financial Statements....................................33
Independent Auditors' Report
The Board of Directors of
Delta and Pine Land Company:
We have audited the accompanying consolidated balance sheets of Delta and Pine
Land Company and subsidiaries as of August 31, 2003 and 2002, and the related
statements of income, changes in stockholders' equity and comprehensive income,
and cash flows for the years 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 audits. The consolidated
financial statements of Delta and Pine Land Company as of and for the year ended
August 31, 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 audits 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 audits provide a
reasonable basis for our opinion.
In our opinion, the 2003 and 2002 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Delta
and Pine Land Company as of August 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
Memphis, Tennessee
October 24, 2003
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
quarterly 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 share and per share amounts)
2003 2002 2001
------------------ ----------------- -----------------
NET SALES AND LICENSING FEES $ 281,276 $ 257,807 $ 305,806
COST OF SALES (178,983) (165,258) (200,236)
------------------ ----------------- -----------------
GROSS PROFIT 102,293 92,549 105,570
------------------ ----------------- -----------------
OPERATING EXPENSES:
Research and development 18,295 18,122 19,924
Selling 10,971 10,591 12,878
General and administrative 15,424 14,006 14,797
------------------ ----------------- -----------------
44,690 42,719 47,599
SPECIAL CHARGES (962) - (6,301)
------------------ ----------------- -----------------
OPERATING INCOME 56,641 49,830 51,670
INTEREST INCOME, NET 1,100 1,247 3,455
OTHER EXPENSE (12,112) (6,468) (4,255)
EQUITY IN NET LOSS OF AFFILIATE (1,977) (305) -
MINORITY INTEREST IN (EARNINGS) / LOSS OF SUBSIDIARIES (1,104) 2,729 (390)
------------------ ----------------- -----------------
INCOME BEFORE INCOME TAXES 42,548 47,033 50,480
PROVISION FOR INCOME TAXES (14,743) (16,694) (18,173)
------------------ ----------------- -----------------
NET INCOME 27,805 30,339 32,307
DIVIDENDS ON PREFERRED STOCK (288) (213) (160)
------------------ ----------------- -----------------
NET INCOME APPLICABLE TO COMMON SHARES $ 27,517 $ 30,126 $ 32,147
================== ================= =================
BASIC EARNINGS PER SHARE $ 0.72 $ 0.79 $ 0.84
================== ================= =================
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN PER SHARE CALCULATIONS - BASIC 38,113 38,362 38,473
================== ================= =================
DILUTED EARNINGS PER SHARE $ 0.70 $ 0.76 $ 0.81
================== ================= =================
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN PER SHARE CALCULATIONS - DILUTED 39,594 39,781 40,111
================== ================= =================
The accompanying notes are an integral part of these consolidated statements.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 31,
(In thousands, except share and per share amounts)
2003 2002
----------------- ------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 143,285 $ 109,091
Receivables, net 166,952 145,876
Inventories 32,231 40,021
Prepaid expenses 2,116 2,266
Deferred income taxes 10,677 11,214
----------------- ------------------
Total current assets 355,261 308,468
PROPERTY, PLANT AND EQUIPMENT, NET 64,441 63,401
EXCESS OF COST OVER NET ASSETS OF
BUSINESSES ACQUIRED, net of accumulated amortization of $737 4,183 4,187
INTANGIBLES, net of accumulated amortization of $1,597 and $1,337 5,470 4,032
INVESTMENT IN AFFILIATE 328 695
OTHER ASSETS 1,869 2,359
----------------- ------------------
TOTAL ASSETS $ 431,552 $ 383,142
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 40 $ 1,763
Accounts payable 17,966 16,447
Accrued expenses 176,150 143,533
Income taxes payable 9,894 12,381
----------------- ------------------
Total current liabilities 204,050 174,124
----------------- ------------------
LONG-TERM DEBT 1,557 1,176
----------------- ------------------
DEFERRED INCOME TAXES 5,220 3,121
----------------- ------------------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 16)
----------------- ------------------
MINORITY INTEREST IN SUBSIDIARIES 3,618 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; 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 107 107
Common stock, par value $0.10 per share; 100,000,000 shares authorized;
39,525,116 and 39,311,571 shares issued;
38,107,850 and 38,204,405 shares outstanding 3,953 3,931
Capital in excess of par value 54,850 51,563
Retained earnings 189,610 172,381
Accumulated other comprehensive loss (5,442) (5,939)
Treasury stock, at cost; 1,417,266 and 1,107,166 shares (25,971) (19,836)
----------------- ------------------
TOTAL STOCKHOLDERS' EQUITY 217,107 202,207
----------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 431,552 $ 383,142
================= ==================
The accompanying notes are an integral part of these consolidated statements.
DELTA AND PINE LAND COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31,
(in thousands)
2003 2002 2001
------------------ ----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 27,805 $ 30,339 $ 32,307
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 7,759 6,815 7,435
Noncash items associated with special charges and disposition of
assets (34) 910 2,348
Equity in net loss of affiliate 1,977 305 -
Minority interest in earnings (loss) of subsidiaries 1,104 (2,729) 390
Change in deferred income taxes 3,315 (3,061) (1,523)
Changes in assets and liabilities:
Receivables (20,804) 31,198 5,128
Inventories 7,849 (4,048) (1,257)
Prepaid expenses 144 (21) 93
Intangibles and other assets (133) (115) 89
Accounts payable 1,473 1,616 (8,162)
Accrued expenses 30,114 (34,443) 10,383
Income taxes (1,557) (2,956) (8,669)
------------------ ----------------- -----------------
Net cash provided by operating activities 59,012 23,810 38,562
------------------ ----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (8,298) (8,384) (7,466)
Sale of investments and property 79 411 243
Investment in affiliate (1,610) (1,000) -
Purchase of minority interest in subsidiary - (4,838) -
------------------ ----------------- -----------------
Net cash used in investing activities (9,829) (13,811) (7,223)
------------------ ----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of short-term debt (2,109) (3,173) (1,838)
Payments of long-term debt - (73) (19,269)
Dividends paid (10,576) (7,881) (5,936)
Proceeds from long-term debt - 978 19,623
Proceeds from short-term debt 467 3,044 1,467
Minority interest in dividends paid by subsidiaries - (446) (594)
Payments to acquire treasury stock (6,135) (9,960) -
Proceeds from exercise of stock options 2,484 2,527 2,871
------------------ ----------------- -----------------
Net cash used in financing activities (15,869) (14,984) (3,676)
------------------ ----------------- -----------------
EFFECTS OF FOREIGN CURRENCY EXCHANGE RATES 880 73 (1,127)
------------------ ----------------- -----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 34,194 (4,912) 26,536
CASH AND CASH EQUIVALENTS, beginning of year 109,091 114,003 87,467
------------------ ----------------- -----------------
CASH AND CASH EQUIVALENTS, end of year $ 143,285 $ 109,091 $ 114,003
================== ================= =================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of capitalized interest $ 60 $ 900 $ 500
Income taxes $ 13,400 $ 21,100 $ 27,600
Noncash financing activities:
Tax benefit of stock option exercises $ 800 $ 700 $ 500
The accompanying notes are an integral part of these consolidated statements.
DELTA AND PINE LAND COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED AUGUST 31, 2001, 2002 AND 2003
(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, 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
Net income - - - 27,805 - - 27,805
Minimum pension liability
adjustment, net of tax of $0.7 million - - - - (1,122) - (1,122)
Foreign currency translation adjustment - - - - 1,661 - 1,661
Unrealized loss on hedging instruments - - - - (42) - (42)
------------
Total comprehensive income 28,302
Exercise of stock options and tax benefit
of stock option exercises - 22 3,287 - - - 3,309
Cash dividends, $0.27 per share - - - (10,576) - - (10,576)
Purchase of common stock - - - - - (6,135) (6,135)
------------ ------------- ------------ ---------------------------------------- ------------
Balance at August 31, 2003 $ 107 $ 3,953 $ 54,850 $ 189,610 $ (5,442) $ (25,971) $ 217,107
============ ============= ============ ======================================== ============
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 3,000 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.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 2003
presentation.
Special Charges/Unusual Items
2003
During 2003, D&PL recorded a $1.0 million charge associated with additional
expenses for the closing of its Chandler, Arizona plant, the closing of its
facility in Centre, Alabama, and reductions in the number of employees at its
wholly-owned subsidiary in Australia and at its joint venture in Hebei Province,
People's Republic of China. These charges are included in "SPECIAL CHARGES" in
the accompanying Consolidated Statements of Income.
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" in the accompanying
Consolidated Statements of Income.
At August 31, 2003 essentially all amounts related to the closing of the two
U.S. facilities and headcount reductions noted above have been utilized. At
August 31, 2002, essentially all amounts related to the fixed asset write downs
for the 2001 reorganization had been 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
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 required by Statement of Financial Accounting
Standards ("SFAS") No. 141.
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. 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, 2003 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
nine 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 (or other instruments) 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 and net income, 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. 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 inclement weather)
by a certain date, a portion of the price of the seed and technology fees are
forgiven or rebated to the farmer. The amount of the refund and the impact to
D&PL depends on a number of factors including whether the farmer can replant the
crop that was destroyed. We record monthly estimates to account for these
programs. The majority of program rebates occur during the second and third
quarters. Essentially all material claims under these programs have occurred 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
As permitted by both SFAS No. 123, "Accounting for Stock-Based Compensation,"
and SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure--an Amendment of FASB Statement No. 123," D&PL applies Accounting
Principles Board Opinion 25 in accounting for its employee stock option plans.
Therefore, no compensation expense for stock options is deducted in determining
net income, as all options granted had an exercise price equal to the fair
market value of the underlying common stock on the grant date. See Note 17 for a
description of the plan and our disclosure of the assumptions underlying the pro
forma calculations below.
The following table illustrates the effect on net income and earnings per share
if D&PL had recorded compensation expense in accordance with the fair value
provisions of SFAS No. 123.
2003 2002 2001
--------------- -------------- ----------------
Net income:
As reported $ 27,805 $ 30,339 $ 32,307
Less: Total stock-based
compensation expense
determined under the
fair value based method
for all awards, net of
related tax effects (3,600) (4,714) (5,743)
---------------- -------------- ----------------
Pro forma $ 24,205 $ 25,625 $ 26,564
================ ============== ================
Basic earnings per share:
As reported $ 0.72 $ 0.79 $ 0.84
================ ============== ================
Pro forma $ 0.63 $ 0.66 $ 0.69
================ ============== ================
Diluted earnings per share:
As reported $ 0.70 $ 0.76 $ 0.81
================ ============== ================
Pro forma $ 0.62 $ 0.64 $ 0.66
================ ============== ================
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 cost of sales 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. D&PL does not enter into speculative
hedges or purchase or hold any derivative financial instruments for trading
purposes.
Impairment of Assets
D&PL assesses recoverability and impairment of identifiable intangible assets
and other long-lived assets whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. 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 impairment test, management
determined that none of the goodwill recorded was impaired. For other long-lived
assets, 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. Otherwise, an impairment loss is not recognized, and D&PL continues
to amortize its other long-lived 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
Financial Accounting Standards Board Interpretation No. ("FIN") 46,
"Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,"
requires the primary beneficiary of a variable interest entity ("VIE") to
consolidate the VIE under certain circumstances. FIN 46 is effective for all new
VIEs created or acquired after January 31, 2003. As amended by FASB Staff
Position FIN 46-6, "Effective Date of FASB Interpretation No. 46, Consolidation
of Variable Interest Entities," FIN 46 is effective for variable interests in a
VIE created before February 1, 2003 at the end of the first interim or annual
period ending after December 15, 2003 (the second quarter of fiscal 2004,
February 28, 2004, for D&PL). Management has not determined the impact, if any,
that this statement will have on our financial position or results of
operations.
SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics
of both Liabilities and Equity," provides guidance on how to classify and
measure certain financial instruments with characteristics of both liabilities
and equity. This statement is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at the beginning of
the first interim period beginning after June 15, 2003. D&PL adopted this
statement for financial instruments entered into after May 31, 2003 and
otherwise adopted this statement September 1, 2003. The adoption of this
statement did not have a material impact on D&PL's consolidated financial
position or results of operations.
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities," amends and clarifies the accounting and reporting for derivative
instruments, including embedded derivatives, and for hedging activities under
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS 149 is effective for contracts entered into or modified after June 30,
2003, and for hedging relationships designated after June 30, 2003. The adoption
of this statement did not have a material impact on D&PL's consolidated
financial position or results of operations.
SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure -- an Amendment of FASB Statement No. 123," was issued in December
2002. SFAS No. 148 provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation under which compensation cost for stock options is recognized. In
addition, this statement amends the disclosure requirements of FASB Statement
No. 123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based compensation and the
effect of the method used on reported results. This required disclosure is
included above.
SFAS No. 146, "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. D&PL adopted
this statement January 1, 2003. The adoption of this statement did not have a
material impact on D&PL's consolidated financial position or results of
operations.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
addresses 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. 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. 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.
2. INVENTORIES
Inventories at August 31, consisted of the following (in thousands):
2003 2002
------------------- -------------------
Finished goods $ 21,476 $ 26,263
Raw materials 17,062 20,961
Growing crops 1,199 878
Supplies 733 1,141
------------------- -------------------
40,470 49,243
Less reserves (8,239) (9,222)
------------------- -------------------
$ 32,231 $ 40,021
=================== ===================
Finished goods and raw material inventory are 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 (in
thousands):
2003 2002
------------------- -------------------
Land and improvements $ 5,124 $ 5,038
Buildings and improvements 41,272 37,117
Machinery and equipment 56,202 52,565
Germplasm 7,500 7,500
Breeder and foundation seed 2,000 2,000
Construction in progress 5,464 4,478
------------------- -------------------
117,562 108,698
Less accumulated depreciation (53,121) (45,297)
------------------- -------------------
$ 64,441 $ 63,401
=================== ===================
4. INTANGIBLES
The components of identifiable intangible assets follow (in thousands):
2003 2002
----------------------------- -----------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
-------------- ------------- -------------- --------------
Trademarks $ 3,182 $ (800) $ 3,182 $ (721)
Commercialization
agreements 400 (65) 400 (37)
Licenses 1,100 - - -
Patents 426 (84) 295 (74)
Other 1,959 (648) 1,492 (505)
-------------- -------------- ------------- --------------
$ 7,067 $ (1,597) $ 5,369 $ (1,337)
============== ============== ============= ==============
Amortization expense for identifiable intangible assets during the year ended
August 31, 2003, 2002, and 2001 was approximately $270,000, $280,000, and
$260,000, respectively. Identifiable intangible asset amortization expense is
estimated to be $300,000 in each of the fiscal years from fiscal 2004 through
fiscal 2008.
Pro forma results of operations for the year ended August 31, 2001 had we
applied the nonamortization provisions of SFAS 142 in that period would not have
been materially different than reported results for that period.
5. INVESTMENT IN AFFILIATE
D&PL owns 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,
DeltaMax 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. For the years ended August 31, 2003 and
2002, D&PL's equity in the net loss of DeltaMax was $1,977,000 and $305,000,
respectively.
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 5.34% during 2001.
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, 2003, 2002 and 2001, D&PL was in compliance
with these covenants which are still used to determine fees charged on letters
of credit. D&PL and the lenders have had discussions about a replacement
facility that would provide for aggregate borrowings sufficient to meet working
capital need and contain terms and conditions similar to the 1998 facility.
7. ACCRUED EXPENSES
Accrued expenses at August 31, consisted of the following (in thousands):
2003 2002
------------------ ------------------
Bollgard and Roundup Ready
royalties and related expenses
due to Monsanto $ 135,627 $ 112,178
Sales allowances 11,756 10,447
Payroll 2,136 2,310
Other accrued expenses 26,631 18,598
------------------ ------------------
$ 176,150 $ 143,533
================== ==================
8. INCOME TAXES
The provisions for income taxes for the years ended August 31, consisted of the
following (in thousands):
2003 2002 2001
------------------ ------------------ -----------------
Current-
Federal $ 10,891 $ 18,380 $ 16,972
State 1,216 2,047 2,064
Deferred 2,636 (3,733) (863)
------------------ ------------------ -----------------
$ 14,743 $ 16,694 $ 18,173
================== ================== =================
The differences between the statutory federal income tax rate and the effective
rate are as follows:
2003 2002 2001
------------ ------------ ------------
Statutory rate 35.0% 35.0% 35.0%
Increases (decreases) in tax
resulting from:
State taxes, net of federal
tax benefit 2.3 2.2 2.4
Research and development
tax credits (1.1) (1.1) (1.0)
Foreign activities and
non-deductible costs (1.3) (1.4) (1.7)
Other (0.2) 0.8 1.3
------------ ------------- -------------
Effective rate 34.7% 35.5% 36.0%
============ ============== =============
Deferred income taxes at August 31, consisted of the following (in thousands):
2003 2002
------------------- -------------------
Deferred tax assets:
Inventory $ 5,635 $ 5,660
Litigation costs 1,387 1,946
Pension 1,080 1,447
Other 2,575 2,988
------------------- -------------------
$ 10,677 $ 12,041
=================== ===================
Deferred tax liabilities:
Property (1,799) (1,225)
Other (3,421) (2,723)
------------------- -------------------
(5,220) (3,948)
------------------- -------------------
Net deferred income taxes $ 5,457 $ 8,093
=================== ===================
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
does not have any capital leases. Future minimum rental payments after 2003
under operating leases with initial or remaining noncancellable terms in excess
of one year are as follows:
2004 $ 249,000
2005 $ 96,000
2006 $ 40,000
2007 $ 19,000
2008 $ 17,000
Rent and lease expense including land rent approximated $2,767,000, $2,704,000
and $2,993,000 in 2003, 2002 and 2001, 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 common stock, preferred stock and corporate bonds 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.
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, 2003, and a statement of the funded status as of August 31,
2003 and 2002.
Plan SERP
-------------------------------------- ---------------------------------------
2003 2002 2003 2002
----------------- ----------------- ------------------ ------------------
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligation at beginning of year $ 13,393,000 $ 11,905,000 $ 570,000 $ 547,000
Service cost 638,000 646,000 8,000 7,000
Interest cost 915,000 841,000 38,000 37,000
Actuarial loss 2,624,000 678,000 49,000 28,000
Benefits paid (722,000) (677,000) (49,000) (49,000)
----------------- ----------------- ------------------ ------------------
Benefit obligation at end of year $ 16,848,000 $ 13,393,000 $ 616,000 $ 570,000
================= ================= ================== ==================
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 7,761,000 $ 10,231,000 $ 380,000 $ 540,000
Actual return on plan assets 721,000 (2,317,000) 32,000 (110,000)
Company contributions 2,500,000 600,000 - -
Benefits paid (722,000) (677,000) (49,000) (49,000)
Expenses (72,000) (76,000) (1,000) (1,000)
----------------- ----------------- ------------------ ------------------
Fair value of plan assets at end of year $ 10,188,000 $ 7,761,000 $ 362,000 $ 380,000
================= ================= ================== ==================
Funded status $ (6,660,000) $ (5,632,000) $ (254,000) $ (190,000)
Contribution after measurement date - 1,000,000 - -
Unrecognized prior service cost 40,000 43,000 - -
Unrecognized net loss 6,461,000 4,062,000 49,000 185,000
----------------- ----------------- ------------------ ------------------
Accrued pension cost $ (159,000) $ (527,000) $ (205,000) $ (5,000)
================= ================= ================== ==================
Plan SERP
-------------------------------------- ---------------------------------------
2003 2002 2003 2002
----------------- ----------------- ------------------ ------------------
AMOUNTS REFLECTED IN THE BALANCE SHEET AT
AUGUST 31:
Accrued benefit liability $ (159,000) $ (527,000) $ (205,000) $ (5,000)
Minimum pension liability (4,657,000) (2,725,000) (49,000) (185,000)
Accumulated other comprehensive loss 4,617,000 2,682,000 49,000 185,000
Intangible asset 40,000 43,000 - -
----------------- ----------------- ------------------ ------------------
Net amount reflected $ (159,000) $ (527,000) $ (205,000) $ (5,000)
================= ================= ================== ==================
Periodic Pension Expense:
Plan SERP
----------------------------------------- -----------------------------------------
2003 2002 2001 2003 2002 2001
------------ ------------ ------------- ------------ ------------- ------------
Service cost $ 638,000 $ 646,000 $ 634,000 $ 8,000 $ 7,000 $ 7,000
Interest cost on projected
benefit obligation 915,000 841,000 815,000 38,000 37,000 46,000
Expected return on assets (687,000) (889,000) (1,055,000) (32,000) (47,000) (55,000)
Recognized loss/(gain) 263,000 - (83,000) 186,000 10,000 -
Amortization of transitional
obligation - 65,000 119,000 - - -
Amortization of prior service
cost 3,000 4,000 4,000 - - -
------------ ------------ ------------- ------------ -------------- ------------
Net periodic pension
expense/(income) $ 1,132,000 $ 667,000 $ 434,000 $ 200,000 $ 7,000 $ (2,000)
============ ============ ============= ============ ============== ============
Company contributions $ 1,500,000 $ 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 6.00% in 2003 and 7.00% in
2002, with assumed salary increases of 4% in 2003 and 2002 to age 65. The
expected long-term rate of return on assets was 8.5% in 2003 and 9.0% in 2002.
Prior service cost is amortized over the expected future service years of plan
participants that are expected to receive benefits.
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 2003, 2002 or 2001.
11. MAJOR CUSTOMERS
In fiscal 2003, 2002 and 2001 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
and licensing fees to each of the customers. These amounts were reported in
D&PL's domestic segment.
Customer 2003 2002 2001
--------------- ------------------ ------------------- -------------------
A $31,842,000 $29,034,000 $31,833,000
B 56,911,000 46,752,000 54,937,000
C 54,791,000 56,532,000 72,358,000
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):
2003 2002 2001
--------------- --------------- ---------------
Net sales and
licensing fees
Domestic $ 251,922 $ 225,402 $ 261,883
International 29,354 32,405 43,923
--------------- --------------- ---------------
$ 281,276 $ 257,807 $ 305,806
=============== =============== ===============
Operating income
Domestic $ 55,885 $ 44,554 $ 43,429
International 756 5,276 8,241
--------------- -------------- --------------
$ 56,641 $ 49,830 $ 51,670
=============== ============== ==============
Capital expenditures
Domestic $ 5,613 $ 5,922 $ 6,594
International 2,685 2,462 872
--------------- -------------- --------------
$ 8,298 $ 8,384 $ 7,466
=============== ============== ==============
Information about the financial position of D&PL's segments as of August 31, is
as follows (in thousands):
2003 2002
--------------- ---------------
Long-term assets
Domestic $ 59,640 $ 60,004
International 16,651 14,670
--------------- --------------
$ 76,291 $ 74,674
=============== ===============
Total assets
Domestic $ 403,976 $ 368,345
International 27,576 14,797
--------------- ---------------
$ 431,552 $ 383,142
=============== ===============
13. RELATED PARTY TRANSACTIONS
The chairman of the Board of Directors of D&PL is also a director for Stephens
Group, Inc. In October 2003, he retired as an officer of Stephens Group, Inc.
and as a director and officer for Stephens, Inc., a full service investment
bank; however, he remains a consultant and an employee of these companies.
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 relating
to the DeltaMax formation.
During 2003, 2002 and 2001, a partner of two law firms (he changed firms in
October 2001) that represented D&PL was also a stockholder and D&PL's corporate
secretary. D&PL paid legal fees to those firms of approximately $633,000,
$628,000, and $833,000 in 2003, 2002 and 2001, respectively.
During 2002 and 2001, 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 $249,000 and $406,000
in 2002 and 2001, 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.
During 2003, DeltaMax paid Temasek Life Science Laboratory ("Temasek")
approximately $811,000 for research activities Temasek conducted for DeltaMax.
Temasek is a related party of Temasek Capital and Temasek Holdings. Dr. Chua, a
member of the Board of Directors of D&PL, was the Chief Scientific Advisor of
Temasek Capital from April 2001 to March 2003 and was appointed to be Corporate
Advisor to Temasek Holdings from April 2003 through March 2004.
14. DERIVATIVE FINANCIAL INSTRUMENTS
Other comprehensive loss includes the following related to the Company's soybean
hedging program for the years ended August 31, 2003 and 2002 (in thousands):
2003 2002
--------- ----------
Deferred net gain, beginning of year $ 304 $ 210
Net gains (losses) on hedging instruments
arising during the year 463 (222)
Reclassification adjustment of (gains)
losses on hedging instruments to earnings (505) 316
--------- ----------
Net change in accumulated other comprehensive loss (42) 94
--------- ----------
Deferred net gain on derivative instruments
included in other comprehensive loss at end of year $ 262 $ 304
========= ==========
The net gain of $262,000 included in accumulated other comprehensive loss at
August 31, 2003, consists of net unrealized gains of $260,000 and net realized
gains of $2,000, which 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.
For the years ended August 31, 2003, 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
1
On May 28, 2002, D&M International, LLC redeemed Pharmacia's 50% interest in D&M
International, LLC for cash of approximately $4.8 million. D&PL and
1
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.
----------------------------
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. Pursuant to the closing of a merger on April 16, 2003,
Pharmacia Corporation merged with and into a wholly-owned subsidiary of Pfizer
Inc. Pharmacia survived the merger as a wholly-owned subsidiary of Pfizer Inc.
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 on that date. With respect to events occurring
between March 31, 2000 and April 16, 2003, this entity is referred to as
"Pharmacia". With respect to events occurring after April 16, 2003, the entity
referred to as "Pharmacia" is that entity which on that date became a
wholly-owned subsidiary of Pfizer Inc. With respect to events occurring after
March 31, 2000, the entity formed as Monsanto Ag Company and renamed Monsanto
Company (NYSE: MON) on March 31, 2000, is referred to as "Monsanto".
The acquisition of the 50% interest in D&M International, LLC has been accounted
for as a purchase business combination, and the results of its operations have
been included in D&PL's consolidated statement of operations from the date of
acquisition. The allocation of the purchase price resulted in no goodwill. Pro
forma results of operations for the year ended August 31, 2002 had the
acquisition occurred at the beginning of the period would not have been
materially different than reported results for the period.
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 those containing Monsanto's
technology) did not perform as the farmer had anticipated or expected. In some
of these cases, Monsanto and/or the dealer or distributor who sold the seed are
also named as defendants. In all cases where the seed sold contained either or
both of Monsanto's Bollgard and/or Roundup Ready gene technologies, and where
the farmer alleged a failure of one or more of those technologies, D&PL has
tendered the defense of the case to Monsanto and requested indemnity. Pursuant
to the terms of the February 2, 1996 Bollgard Gene License and Seed Services
Agreement (the "Bollgard Agreement") and the February 2, 1996 Roundup Ready Gene
License and Seed Services Agreement (the "Roundup Ready Agreement") (both as
amended December 1999, January 2000 and March 2003 and the Roundup Ready
Agreement as additionally amended July 1996) 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 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
On July 15, 2003, D&PL received a notice from Monsanto asserting that disputes
exist among Monsanto, D&PL and D&M Partners pertaining to four matters under the
Bollgard(R) and Roundup Ready(R) Licenses for the United States and two matters
under license agreements for Argentina and the Republic of South Africa,
respectively. Monsanto's notice of dispute asserts that D&PL's failure to
address these issues would be a breach of D&PL obligations under the relevant
agreements and reserves all of Monsanto's rights under these agreements. In
August 2003, D&PL and D&M Partners responded to Monsanto's positions on each
issue and notified Monsanto of three additional disputes, each concerning
Monsanto's compliance with its obligations under the Bollgard and Roundup Ready
Licenses for the United States. In accordance with the dispute resolution
provisions of the subject agreements, the issues raised in Monsanto, D&PL and
D&M Partners' notices have been submitted to a panel of senior executives. D&PL
is committed to participating in good faith resolution of the issues in dispute.
Any issues not resolved by the executive panel may be submitted to binding
arbitration as provided in the relevant agreements.
On July 23, 2003, D&PL was named as a defendant along with a local resident in a
lawsuit filed in the Circuit Court of Dunklin County, Missouri. This case was
removed to the United States District Court for the Eastern District of
Missouri, Southwest Division, on August 22, 2003, and a motion to remand the
case back to state court is now pending. The lawsuit alleges that D&PL committed
certain business torts, including malicious prosecution of a civil action,
interference with contractual relationships and other claims when D&PL pursued a
claim in an earlier lawsuit against the plaintiff in this litigation. The
defense of this claim has been tendered to D&PL's liability and insurance
carriers. D&PL's insurance carriers have agreed to provide a defense to this
action and indemnity subject to the reservation of certain specific rights. This
case is in the very early pre-trial phase and intitial discovery is now ongoing.
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.
On January 14, 2003, the Court denied DITC's motion to dismiss, and the case in
now in discovery.
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
$669,000 at October 31, 2003 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 Central
America and Mexico.
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. 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 became convertible on February 2, 2003, the seventh anniversary
of the date on which the Series M Preferred Stock was issued.
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, options to purchase
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 options to purchase 62,222 shares
upon being named to the Board and each director is given an additional annual
grant of options to purchase 2,666 shares for each of the second through sixth
year 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, 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
Granted 258,554 18.28 23.99
Exercised (213,545) 4.67 24.25
Lapsed or canceled (98,846) 17.85 41.69
-------------- ------------ ----------
Outstanding at August 31, 2003 3,983,982 $ 4.67 $ 47.31
============== ============ ==========
The weighted average fair values of options granted in fiscal 2003, 2002 and
2001 were $6.41, $6.49 and $10.41 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:
2003 2002 2001
-------------- --------------- ---------------
Expected dividend yield 1% 3% 3%
Expected option lives 8 years 5 years 5 years
Expected volatility 24.99% 33.52% 39.09%
Risk-free interest rates 3.07% 5.54% 5.86%
The following table summarizes certain information about outstanding and
exercisable stock options at August 31, 2003:
Options Outstanding Options Exercisable
---------------------------------- -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Price Contractual Life Exercise Exercise
Range Number in Years Price Number Price
---------------- ---------- -------- ------------ ---------- ----------
$ 4.67 to 16.50 735,130 1.4 $ 8.42 735,130 $ 8.42
$ 16.91 to 28.90 3,165,192 6.2 20.77 1,860,981 21.82
$ 32.80 to 39.19 81,660 5.2 35.90 67,990 35.96
$ 41.69 to 47.31 2,000 4.7 47.31 2,000 47.31
---------- ----------
3,983,982 2,666,101
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, 2003, D&PL had repurchased 1,303,000 shares at an
aggregate purchase price of approximately $23,798,000 under this program. D&PL
purchased 310,100 shares at an aggregate purchase price of $6,135,000 under this
plan in the year ended August 31, 2003.
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
1,117,000, 2,259,000 and 748,000 outstanding stock options were not included in
the computation of diluted earnings per share for the years ended August 31,
2003, 2002 and 2001, 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.
The table below reconciles the basic and diluted per share computations:
For the Twelve Months Ended August 31,
---------------------------------------
2003 2002 2001
----------- ----------- -----------
Income:
Net income $ 27,805 $ 30,339 $ 32,307
Less: Preferred stock dividends (288) (213) (160)
----------- ----------- -----------
Net income for basic EPS 27,517 30,126 32,147
Effect of Dilutive Securities:
Convertible Preferred Stock Dividends 288 213 160
----------- ----------- -----------
Net income available to common
stockholders plus assumed conversions
- for diluted EPS $ 27,805 $ 30,339 $ 32,307
============ =========== ===========
Shares:
Basic EPS shares 38,113 38,362 38,473
Effect of Dilutive Securities:
Options to purchase common stock 414 352 571
Convertible preferred stock 1,067 1,067 1,067
------------ ------------ -----------
Diluted EPS shares 39,594 39,781 40,111
============ ============ ===========
Per Share Amounts:
Basic $ 0.72 $ 0.79 $ 0.84
============ ============ ===========
Diluted $ 0.70 $ 0.76 $ 0.81
============ ============ ===========
18. UNAUDITED QUARTERLY FINANCIAL DATA
All of D&PL's domestic seed products (including those containing Bollgard and
Roundup Ready technologies) 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
commodity prices and weather conditions occurring in the spring planting season
(during D&PL's third and fourth fiscal 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. 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
inclement weather) by a certain date, a portion of the price of the seed and
technology fees are forgiven or rebated to the farmer. The amount of the refund
and the impact to D&PL depends on a number of factors including whether the
farmer can replant the crop that was destroyed. We record monthly estimates to
account for these programs. The majority of program rebates occur during the
second and third quarters. Essentially all material claims under these programs
have occurred 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 2003: Three months ended
November 30 February 28 May 31 August 31
--------------------------------------------------------------------------------
Net sales and licensing fees $ 5,599 $ 107,537 $ 168,936 $ (796)
Gross profit 1,760 42,161 58,389 (17)
Net (loss) income applicable to
common shares (2) (7,484) 16,068 28,401 (9,468)
Net (loss) income per
share-basic (1) (2) (0.20) 0.42 0.75 (0.25)
Weighted average number of
shares used in quarterly per
share calculations-basic 38,176 38,124 38,049 38,103
Net (loss) income per
share- diluted (1) (2) (0.20) 0.41 0.72 (0.25)
Weighted average number of
shares used in quarterly per
share calculations-diluted 38,176 39,556 39,598 38,103
--------------------------------------------------------------------------------
Fiscal 2002: Three months ended
November 30 February 29 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 (loss) income applicable to
common shares (4,538) 17,721 25,012 (8,069)
Net (loss) income 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 (loss) income 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
--------------------------------------------------------------------------------
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 (loss) income applicable to
common shares (3) (4,958) 23,843 22,885 (9,623)
Net (loss) income 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 (loss) income 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
(1) The sum of the quarterly net (loss) income 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 first and
third quarters each include the effect of recording a $0.5 million charge in
each quarter for the closing of two U.S. locations and reductions in the number
of employees at an international wholly-owned subsidiary and at an international
joint venture. (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 D&PL engaged KPMG LLP ("KPMG") as D&PL's independent auditors.
During fiscal 2000 and 2001 and through May 14, 2002, D&PL 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 D&PL, 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 D&PL's Board of Directors at the recommendation of the Audit
Committee. In light of the uncertainties involving Arthur Andersen at the time
of this change, D&PL's Board of Directors and Audit Committee determined that it
was in the best interests of D&PL to appoint a different independent auditing
firm.
Arthur Andersen issued an unqualified opinion on the consolidated financial
statements of D&PL 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.
D&PL requested, and Arthur Andersen furnished, a letter addressed to the
Securities and Exchange Commission stating that Arthur Andersen agrees with the
statements made by D&PL 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.
ITEM 9A. 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 August 31, 2003.
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.
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
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
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 15, 2004 to be
filed with the Commission pursuant to Regulation 14(a) no later than December
30, 2003 and is incorporated herein by reference.
PART IV
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:
Independent Auditors' Report
Report of Independent Public Accountants
Consolidated Statements of Income - for each of the three years in the period
ended August 31, 2003
Consolidated Balance Sheets - August 31, 2003 and 2002
Consolidated Statements of Cash Flows - for each of the three years in the
period ended August 31, 2003
Consolidated Statements of Changes in Stockholders' Equity and Comprehensive
Income - for each of the three years in the period ended August 31, 2003
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.........................................53
Report of Independent Public Accountants................................54
Schedule II - Consolidated Valuation and Qualifying Accounts............55
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 56.
4. Reports on Form 8-K
On September 12, 2003, D&PL filed a report on Form 8-K dated September 12, 2003
under Items 5 and 7 announcing a press release dated September 12, 2003,
announcing court action in our lawsuit against Monsanto Company.
On October 28, 2003, D&PL filed a report on Form 8-K dated October 28, 2003
under Items 7 and 12 announcing a press release dated October 28, 2003,
reporting results of operations and financial condition for the quarter and
twelve months ended August 31, 2003.
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 26, 2003.
DELTA AND PINE LAND COMPANY
(Registrant)
/s/ Jon E.M. Jacoby
-------------------------------------------- November 26, 2003
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 November 26, 2003
------------------------ Officer, and Director
W. Thomas Jagodinski (Principal Executive Officer)
/s/ R.D. Greene Vice President - Finance, November 26, 2003
--------------------- Treasurer and Assistant Secretary
R. D. Greene (Principal Financial and
Accounting Officer)
/s/ F. Murray Robinson Vice Chairman and Director November 26, 2003
---------------------
F. Murray Robinson
/s/ Stanley P. Roth Vice Chairman and Director November 26, 2003
---------------------
Stanley P. Roth
/s/ Nam-Hai Chua Director November 26, 2003
---------------------
Nam-Hai Chua
/s/ Joseph M. Murphy Director November 26, 2003
---------------------
Joseph M. Murphy
/s/ Rudi E. Scheidt Director November 26, 2003
---------------------
Rudi E. Scheidt
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 2003 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 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 financial statements.
The schedule has been subjected to the auditing procedures applied in the audits
of the basic 2003 and 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 2003 and 2002 financial statements taken as a
whole.
KPMG LLP
Memphis, Tennessee
October 24, 2003
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 Balance
Beginning to Costs Charged to at End
of and Other of
Period Expenses Accounts Deductions Period
------------------------------------------------------------------------------------------------------------------------
Fiscal year ended August 31, 2001
Allowance for doubtful accounts $ 1,091 $ 153 $ - $ (57)(a) $ 1,187
Fiscal year ended August 31, 2002
Allowance for doubtful accounts $ 1,187 $ 228 $ (303)(b) $ (12)(a) $ 1,100
Fiscal year ended August 31, 2003
Allowance for doubtful accounts $ 1,100 $ 476 $ 472 (b) $ (39)(a) $ 2,009
(a) Write off of uncollectible accounts, net of recoveries
(b) 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, 2003
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)
10.01 Incentive Bonus Program. (6)
10.02 Delta and Pine Land Company Retirement Plan as amended and restated as
of January 1, 1997 and further amended by Amendment No. 1 dated
October 23, 2002, Amendment Nos. 2 and 3 dated December 20, 2002. (15)
10.03 Supplemental Executive Retirement plan dated May 22, 1992, and
effective January 1, 1992. (6)
10.04 1993 Stock Option Plan of Registrant, as adopted on
June 11, 1993. (1)(6)
10.05 Asset Purchase agreement between Delta and Pine Land Company and
Cargill, Inc. dated May 2, 1994 (8)
10.06 Delta and Pine Land Company Savings Plan - Wells Fargo Bank Texas,
N.A. Defined Contribution Master Plan and Trust Agreement, Adoption
Agreement dated December 23, 2002, EGTRRA Amendment to the Wells Fargo
Bank Texas, N.A. Defined Contribution Master Plan and Trust Agreement
dated November 1, 2001, Post-EGTRRA Amendment to the Wells Fargo Bank
Texas, N.A. Defined Contribution Master Plan and Trust Agreement dated
September 11, 2003. (15)
10.07 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)
10.08 Trademark License Agreement dated February 2, 1996 between Monsanto
and D&PL. (3)
10.09 Registration Rights Agreement between D&PL and Monsanto dated
February 2, 1996. (3)
10.10 Temporary Services Agreement dated February 2, 1996 between Monsanto,
D&PL, and PTC. (3)
10.11 Research Facility Lease with Option to Purchase dated February 2, 1996
between Monsanto and PTC. (3)
10.12 Greenhouse Lease dated February 2, 1996 between Monsanto and PTC. (3)
10.13 Research Agreement dated February 2, 1996 between Monsanto and PTC. (3)
10.14 Partnership Agreement dated February 2, 1996 between D&PL and
Monsanto.(3)
10.15 Marketing Services Agreement dated February 2, 1996 between D&PL,
Monsanto and D&M Partners. (3)
10.16 Bollgard Gene License and Seed Services Agreement dated February 2,
1996 between Monsanto, D&M Partners, and D&PL. (3)
10.17 Roundup Ready Gene License and Seed Services Agreement dated February
2, 1996 between Monsanto, D&M Partners and D&PL. (3)
10.18 Option Agreement dated February 2, 1996 between Monsanto
and D&PL. (3)(6)
10.19 Agreement between the D&PL Companies and the Sure Grow Companies, Sure
Grow Shareholders and Sure Grow Principals dated May 20, 1996. (9)
10.20 Amended and Restated Delta and Pine Land Company 1995 Long-Term
Incentive Plan, as adopted on February 6, 1996. (6)(15)
10.21 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)
10.22 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)
10.23 Bollgard II Gene License and Seed Services Agreement dated
December 11, 2000. (11)
10.24 Roundup Ready Soybean License and Seed Services Agreement and the
Amended and Restated Licensee Incentive Agreement. (11)
10.25 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. (10)
10.26 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. (10)
10.27 Amendment to Bollgard Gene License and Seed Services Agreement of
February 2, 1996 dated March 26, 2003. (15)
10.28 Amendment to Roundup Ready Gene License and Seed Services Agreement of
February 2, 1996 dated March 26, 2003. (15)
14.00 Delta and Pine Land Company Code of Business Conduct and Ethics (15)
16.00 Letter from Arthur Andersen LLP to the Securities and Exchange
Commission dated May 14, 2002 regarding change in certifying
accountant (5)
21.01 Subsidiaries of the Registrant. (15)
23.01 Independent Auditors' Consent. (15)
23.02 Notice Regarding Consent of Arthur Andersen LLP. (15)
31.01 Section 302 Certification of Principal Executive Officer. (15)
31.02 Section 302 Certification of Principal Financial Officer. (15)
32.01 Certification of Periodic Financial Report Pursuant to 18 U.S.C.
Section 1350 by Principal Executive Officer. (15)
32.02 Certification of Periodic Financial Report Pursuant to 18 U.S.C.
Section 1350 by Principal Financial and Accounting Officer. (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 8-K filed May 17, 2002
(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 filed November 25, 2002
(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